Season 7, Post 27: Madness or genius?
Move over AI, there’s a new hot topic in town. It’s not quantum (although we’ve written on it recently), but stablecoins. For the unaware, a stablecoin is a type of cryptocurrency whose value is – you’ve guessed it – designed to be stable. Such stability is achieved by pegging the currency to a more stable asset such as a fiat currency (such as the US Dollar) or a commodity (like gold).
Expect to hear a lot more about stablecoins since last week legislation passed in the US now creates a regulatory regime which provides clear rules for a growing industry. The GENIUS Act (short for the Guiding and Establishing National Innovation for US Stablecoins Act) includes the provision for stablecoins to be backed one-for-one with US dollars, or other low-risk assets. The Act also requires stablecoin to comply with strict marketing rules to protect consumers from deceptive practices.
So will we all be transacting in stablecoins soon? Probably not, in the opinion of this author. As a practising sceptic, the boundary between genius and madness has always been a narrow one. Contrast the high-speed, 24-7 availability, low-cost and immutable nature of stablecoins with a range of much more mundane but necessary practical considerations that are required. For any currency to become a general-purpose payment tool, it needs to be not only seamless and predictable but also have significant reach, distribution and global merchant acceptance. Add in to this the importance of multi-level security and fraud protection as well as compliance with local laws and regulations across multiple geographies. The US is the only major nation to have passed stablecoin legislation at present.
These observations were reinforced in a recent investor call hosted by Mastercard on the topic. Clearly the payment processor has a vested interest in integrating stablecoins into its payment rails, but Mastercard made several additional valid points, with which we concur. Of note, today, c90% of all stablecoin volume is crypto-trading related. Consumer and merchant acceptance may take longer. Further, almost all stablecoin transactions need an on/off-ramp, or conversion with a fiat currency. Disintermediation might only happen if two parties wanted to transact in the same stablecoin currency and for the identical monetary amount. Few geniuses are currently capable of that. Watch this space, since we will be writing more on this topic in the coming months.
22 July 2025
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in Mastercard. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
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Alex Gunz, Fund Manager
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