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Investors love the pricing power of “last mile” businesses.
Comcast charges $75 a month for internet access because it buried the cable outside your house that connects you to the world wide web.
Walmart is the last mile of consumer goods because its shelves are where supply meets demand, and brands pay dearly (in discounts and promotions) to win a place on them.
Amazon charges third-party sellers as much as 45% of their sale price for access to its virtual shelf space and last-mile network of warehouses and delivery trucks.
Is this how the stablecoin business will work as well?
Last week, we learned that both Stripe and Circle are building stablecoin-optimized blockchains, and the timing (on the same day, even) inevitably frames this as a competition: “Circle and Stripe now appear to be converging on the same goal: building rival financial networks for digital money,” Bloomberg reported.
If so, they will likely be converging from different directions.
Stripe’s blockchain, Tempo, is expected to focus first on retail-merchant payments, while Circle’s Arc sounds more like behind-the-scenes infrastructure — “an enterprise-grade foundation for stablecoin payments, FX and capital markets applications,” as they pitch it.
It’s tempting to say Stripe starts with an advantage here, since it’s already a last-mile business — it owns the checkout button and the customer relationship, connecting directly to more than a million merchants.
Circle, by contrast, has no direct contact to its end-users at all — we get our USDC on exchanges, not from Circle itself.
But the last mile isn’t always the place to make money.
Gas stations, for example, earn only pennies on each gallon of gas they sell while the oil majors they buy from make much bigger profits upstream. Retail brokers have to offer customers free trading while the exchanges they connect to mint money from data and transaction fees.
In other industries, however, the last mile and the infrastructure can be equally profitable: Nvidia and AWS, for example, both do very well for themselves.
The business of moving money that Stripe and Circle are both hoping to disrupt is enormous: Austin Campbell notes that international transfers alone move roughly $1.25 quintillion annually.
The all-in cost for a bank to make an international wire transfer is over $8, so I imagine there’s a lot of money for Circle to make just from banks (without ever reaching the end user) if it figures out how to do it cheaper with stablecoins.
Payments are also highly complex.
A single dollar spent on a YouTube ad, for example, might be collected in euros, split between Google in Ireland, a content creator in India and a publisher in Brazil, then routed through multiple banks, in multiple currencies — all of which is set in motion by a click on a website.
If Stripe can use programmable money to automate that complexity at the de minimis cost of a stablecoin transaction, its Tempo blockchain could be a hit.
There are many more niches of the payments world to disrupt, so even if Stripe and Circle are destined to converge, it might be a long time before they actually compete.
There should be plenty for both to do — it’s reasonable to imagine that every kind of payment could someday be made in stablecoins.
Guillaume Poncin, CTO of the crypto infrastructure provider Alchemy, told me that banking infrastructure “will run on blockchain rails,” noting that stablecoins are particularly well-suited for cross-border payments, ACH transfers and interchange payments between banks.
It might happen fast. “In five years,” Cosmo Jiang told Empire, “I’d be shocked if not all the financial applications on your phone were running on blockchain rails.”
If so, it probably won’t happen on a general-purpose chain like Ethereum.
For stablecoins to be used at scale in the real world, they will probably have to be on a specialized blockchain like what Circle is building — with predictable fees, dispute resolution, privacy for users and transparency for regulators.
I’m sure Stripe’s yet-to-be-announced chain will have similar functionality. But that doesn’t mean it will be a direct competitor.
If the stablecoin market gets as big as they think it will, it might not be Stripe vs. Circle, but Stripe and Circle both.
Or neither, maybe.
Austin Campbell believes that in the race to build stablecoin payment rails, “the answer to who will win is none of the people on the field.”
The race itself is only in its first mile.
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Source: https://blockworks.co/news/stablecoins-payment-rails-race
