Original | Odaily Planet Daily ( @OdailyChina )
Author: Wenser ( @wenser 2010 )
The stock price of Circle, the first stablecoin stock in the United States, continues to soar, which has not only ignited the enthusiasm of capital for blockchain concept stocks, but also made a number of traditional companies eager to move. In particular, the relaxation of policies - the US stablecoin regulatory bill Genius Act and the Hong Kong Stablecoin Regulatory Bill have been passed one after another, and many traditional companies want to share a piece of the lucrative stablecoin pie.
Based on the above needs, the established stablecoin issuer announced the establishment of Paxos Labs, which aims to help institutions issue branded stablecoins, deploy tokenized yield strategies, and manage tokenized assets. Odaily Planet Daily will discuss the development of the platform and whether the Stablecoin as a Service (SaaS) business model behind it is established in this article for readers reference.
Paxos Labs: A “SaaS” platform that Paxos has high hopes for
On June 19, Paxos officially announced the launch of Paxos Labs, the embedded on-chain financial product infrastructure layer. Just looking at the name, it is hard not to associate it with the L1, L2, L3 and other blockchain network layers.
Paxos Labs: Aspiring to Become a Branded Stablecoin Infrastructure
The specific introduction of the platform mentioned: We help the platform launch: branded stablecoins; yield strategies; structured tokenized assets; all of which are directly reflected in the user experience.
After mentioning the gap between the demand side and the supply side, Paxos Labs emphasized : Through Paxos Labs, platforms can develop their brands and create their economic systems by launching branded stablecoins; allow users to earn income through programmable income vaults; and provide customized structured products, such as tokenized fixed income strategies.
To put it simply, Paxos Labs will help institutions and platforms achieve three major goals:
Issue its own stablecoin and connect to the entire crypto-economic system;
It is convenient for corresponding stablecoin users to realize interest-bearing financial management with the help of stablecoins;
It is convenient to convert traditional financial instruments (such as bonds and bills) into on-chain assets for flexible use.
As for the protection behind it, it mainly includes:
DeFi native infrastructure;
Enterprise-grade reliability;
Integration of RWA assets from a network of trusted issuers.
At the end of the official announcement, Paxos Labs left the corresponding contact information - https://paxoslabs.com/connect ; and said: If you are a platform that integrates DeFi products or an RWA issuer who is ready to accelerate the distribution of assets, please contact us.
It took 6 months to incubate internally, and plans to become a one-stop shop within 18 months
Bhau Kotecha, co-founder and head of Paxos Labs,said that Paxos Labs was incubated internally by Paxos and took about 6 months. The motivation behind this was the increase in B-side demand for establishing connections with the DeFi market and RWA assets. Its advantage lies in the easy-to-integrate API, which allows customers to quickly integrate DeFi products without having to bear the complexity of connecting to the DeFi system.
When talking about future development plans, Bhau said: In the next 12 to 18 months, Paxos Labs aims to become a one-stop shop for institutions to provide on-chain product integration services to help partners improve user engagement, retention and commercialization.
Previously, Paxos institutional-level stablecoins included: Global Dollar (USDG) issued by Paxos Digital Singapore; Lift Dollar (USDL) issued by Paxos International; and PayPal USD (PYUSD) issued by Paxos Trust Company on behalf of payment giant PayPal . In addition, Paxos once cooperated with Binance to issue BUSD in 2019, which once ranked among the top three stablecoins in terms of market value.
Paxos Labs biggest feature: Institutional-oriented and product-focused
It is worth mentioning that unlike companies such as Fireblocks, Anchorage or Galaxy Digital that focus on custody or direct access to DeFi protocols, Paxos Labs mainly provides APIs and related infrastructure services to institutions, making it easier for the latter to provide on-chain products to end users.
In addition, Bhau made it clear that Paxos Labs will leverage Paxos’ regulatory expertise, enterprise-grade infrastructure, and extensive experience in building secure and compliant financial systems to work with multiple asset issuers to support customized stablecoins, not just Paxos.
In other words, Paxos Labs is more like an infrastructure technology provider, acting as an intermediary to connect asset issuers with institutions that have needs such as stablecoin issuance.
Behind the SaaS (Stablecoin as a Service) model: Market, revenue, and mainstream stablecoin payments
At a time when numerous stablecoin projects are springing up, Paxos Labs has turned its attention to many platforms and institutions that have a stablecoin issuance demand. It must be said that this is a choice with a higher strategic dimension - from an upstream role in the industry to a source role in the industry. The premise of the SaaS service and business model it provides is inseparable from the influence of three major aspects:
Stablecoin market size: a vast market of $3.7 trillion
U.S. Treasury Secretary Bessant previously publicly stated that a report predicts that the stablecoin market could reach $3.7 trillion by the end of the next decade. With the passage of the GENIUS Act, the prospects for the stablecoin market will be brighter. The stablecoin ecosystem will drive private sector demand for U.S. Treasuries, which are the backing of stablecoins. This new demand is expected to reduce government borrowing costs and help control national debt. It may also attract millions of new users worldwide to join the dollar-based digital asset economy. This is a win-win situation for all participants.
In contrast, the current size of the stablecoin market is only around US$250 billion, which means there is still nearly 15 times of room for development, and there is great potential in the stablecoin market.
Diversified income sources: income from other reserve funds such as U.S. Treasuries, gold and commercial paper
In addition to the vast market, the important reason that attracts countless institutions to enter the stablecoin track in the short term is the strong money-making ability of this business: USDT issuer Tethers net profit in 2024 will exceed US$13 billion; USDC issuer Circles net profit in 2024 will still be US$156 million after deducting the US$908 million profit shared by partners such as Coinbase and Binance. In the eyes of many institutions, stablecoins are a sure-win business. After all, to some extent, this is equivalent to the on-chain Federal Reserve that prints money at no cost.
Since June, the average daily trading volume of US dollar stablecoins has exceeded 100 billion US dollars, significantly exceeding the trading volume of Bitcoin and Ethereum. According to the first quarter reports of Tether and Circle, it can be inferred that of the total 250 billion US dollars of US dollar stablecoins, US Treasury bonds account for at least 80% of the reserve assets, which is equivalent to an additional 200 billion US dollars in demand for US Treasury bonds. According to Standard Chartered Banks forecast, by 2028, the stablecoin market size will be as high as 2 trillion US dollars, corresponding to a demand for US Treasury bonds of 1.2 trillion to 1.6 trillion US dollars, and stablecoin issuers will become the second largest buyer of US Treasury bonds after the Federal Reserve. And US Treasury bonds with a return of about 4%-5% are the biggest source of income for countless stablecoin issuers. (For more information on Tethers business model, see the article The market value of the first stablecoin USDT hits a new high, revealing the 100 billion business empire behind Tether )
In addition, Tethers reserve funds include gold, Bitcoin and some commercial bills, which are also part of its income structure. Diversified sources of income are also one of the important reasons why institutions are flocking to stablecoins.
Industry trend: Stablecoin payments becoming mainstream
In the long run, the mainstreaming of stablecoin payments is also a major trend. After the electronic payment led by PayPal, WeChat Pay, and mobile payment led by Alipay, the stablecoin payment led by USDT and USDC has gradually become an industry force that cannot be ignored worldwide.
Compared with the Swift system with slow processes and lengthy rules, the low cost and high efficiency of on-chain stablecoin payments undoubtedly beat traditional payment channels. At a time when the stablecoin regulatory bill is about to be implemented, the mainstreaming of stablecoin payments is imperative, which is why domestic Internet giants including Alibaba and JD.com are scrambling to seize the position. (For details about JD.coms entry into stablecoins, please see the article After missing out on payments for ten years, Liu Qiangdong wants to use stablecoins to launch JD.coms Second Payment Revolution? )
For the above reasons, Paxos Labs regards SaaS as a mature technical solution and attempts to use it to establish its own branded stablecoin issuance map. If all goes well, the stablecoin projects that Paxos Labs will participate in issuing in the future will jointly build a stablecoin ecological network that can compete with USDT and USDC.
Risks and challenges of SaaS services: distribution, benefits and application scenarios
Although the issuance of stablecoins and other embedded on-chain products seems to be a good business, profitable business and valuable business sometimes do not completely overlap. The SaaS services provided by Paxos Labs are not foolproof. Specifically, the challenges faced by this business include:
Distribution path: limited channels and concentration of leading companies
BitMEX co-founder Arthur Hayes previously commented in an article : The key to the success of stablecoins lies in the distribution channels, which are currently mainly achieved through crypto exchanges, social media platforms or traditional banks.
Tether has become the worlds leading stablecoin, especially in the Global South, thanks to its cooperation with Bitfinex (first-mover advantage) and the trust it has established in Greater China; Circle distributes USDC through cooperation with Coinbase, but its market share still lags behind Tether.
At present, the two leading stablecoin projects, USDT and USDC, have a market share of about 85%, and other stablecoin projects share about 15% of the market, and the competition is fierce.
Income verification: authenticity of reserve funds
Regarding the development of stablecoin projects, Arthur Hayes warned investors that new entrants face severe challenges in closing distribution channels, and predicted that with the success of Circles IPO, the stablecoin bubble will continue to expand, but will eventually burst on a project that separates dumb money. He emphasized that although stablecoin issuers are lucrative (mainly from government bond returns), investors should be wary of high valuation risks, especially those projects that claim to be able to cooperate with traditional banks but have no actual distribution channels.
As stablecoin regulatory laws have increasingly stringent requirements on issuer qualifications and reserve fund audits, the threshold for stablecoin issuers may be further raised.
Limited scenarios: Low penetration rate of daily life scenarios
At present, the application scenarios of stablecoins are mainly concentrated in cross-border trade, gray and black industry transactions, cryptocurrency transactions and international investment. Relatively speaking, the penetration rate of life scenarios is relatively low. The closure of the U card business of the previous encryption project Infini also indirectly illustrates the current structural problems of the stablecoin payment industry - the layers of exploitation of the banking system, the constraints of regulatory compliance policies, and the inability of the business itself to generate blood.
Subsequently, the mainstreaming of stablecoin payments may still be highly dependent on institutional adoption, as well as the liberalization and support of the banking systems of major global economies, including the United States.
Conclusion: The instability behind stablecoins
With the launch of Paxos Labs, the Hundred Coin War is ready to begin. Whether it is traditional institutions, crypto projects or financial banks, they will all join the stablecoin battlefield. On the one hand, they will earn coin issuance profits and seek to pocket real money; on the other hand, they will expand the business territory and increase the market dream rate, just like Strategy, Metaplanet and other listed companies that hoard coins.
However, the instability behind stablecoins still exists: such as the changes in regulatory bills, the hidden dangers of gray and black industries including money laundering, the systemic risks of the financial system, the inherent security risks of blockchain networks, and the de-anchoring caused by various black swans . By then, the biggest losses will not only be suffered by the issuers, but also by the users of stablecoins.
