Tether and Circle dominate dollar-backed stablecoins. Is it too late for Ripple to join the party?

Good morning. Niamh Rowe in today for Jeff John Roberts. On Thursday, the blockchain firm Ripple announced its plans to launch a stablecoin pegged to the U.S. dollar: yes—another stablecoin joining an already-busy market that’s valued at over $153 billion.

Stablecoins are wildly popular for easy cross-border payments: Over the past day, the trading volume of the most popular stablecoin was a third bigger than Bitcoin’s.

The move will position Ripple against sector leaders Tether (USDT) and Circle (USDC), which together dominate 90% of the stablecoin market. For instance, among the top 10 stablecoins by market capitalization, eight have a trading volume of around $5 billion or less, whereas USDT commands $106 billion.

“I don’t know that the market is crying out, asking for a new stablecoin,” Andy Bromberg, CEO of stablecoin wallet Beam, told me.

But Markus Infanger, SVP of RippleX, said that jumping into the mix is more of a rising-tide-lifts-all-boats situation.

“When we think of competition, it’s a good thing, right?” Infanger told me over a call.

A flurry of stablecoins have launched over the past year. Payments company PayPal launched PYUSD, which just about skims the top 10. Shortly after, Société Générale became the first big bank to list a stablecoin, launching a euro-pegged coin in December. And just this week, Nick van Eck announced he’s launching the Agora digital dollar.

“I don’t see the need for another USD-pegged coin,” Jeffrey Leavitt, an attorney specializing in digital assets at Kozyak Tropin & Throckmorton, told me. “Tether and USDC are working just fine and capture a vast majority of the stablecoin market share.”

So why launch one at all?

Well, stablecoins can be highly lucrative, even if their market caps can’t compare to those of peers.

“These coins are ludicrously profitable businesses,” Beam’s Bromberg told me, owing to high interest rates on U.S. Treasuries. The composite rate for so-called I bonds (a type of U.S. bond where the interest rate adjusts every six months) issued from November 2023 through April 2024 was 5.27%, according to government data. So, if Ripple’s coin can reach $1 billion, that’s an annual yield of over $50 million.

Bromberg sees its success contingent more on drawing in consumers to the coin and keeping them there. The challenge for Ripple is going to be how to compete with other issuers on forming partnerships with platforms that can direct user behavior with rewards or cheaper fees.

Another source of mine who works in DeFi told me its success will rely more on “I scratch your back, you scratch mine” partnerships with platforms to pump the token. He also added that some consumers still view Tether as “somewhat sketchy,” given controversies over unaudited reserves, which could help Ripple distinguish itself.

Ripple said it wants to bring its “compliant-first mindset” to the world of stablecoins, an industry criticized for enabling the majority of illicit crypto transactions. Ripple’s reserve assets will be audited by a third-party accounting firm, publishing monthly attestations, it added.

But other sources noted that USDC, for many consumers, already is filling that role.

“I think that anyone who does not trust Tether with their money switches to USDC,” Bromberg said. “It’s hard for me to imagine a person who is deeply skeptical about Tether’s reserve status and is still holding USDT, right? Like, who is that person?”

Niamh Rowe
niamh.rowe@fortune.com
@niamhrowe7

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