0xResearch Cross-Post: The Last Mile Problem For Stablecoins | Analyst Round Table

This episode dissects the critical "last mile problem" for stablecoins in emerging markets, exploring how projects like Plasma aim to bridge the gap between digital dollar utility and real-world cash economies.

Introduction to Stablecoin Challenges in Emerging Markets

• The core issue with sending USD stablecoins to emerging economies is twofold: converting them to local currency and exchanging them for cash, which remains prevalent.
• Even if sending the stablecoin itself is cost-effective, the on-ramp and off-ramp processes, including exchange rates to local currencies like the Mexican peso, can incur significant costs, negating initial savings.
• Stablecoin: A type of cryptocurrency whose value is pegged to another asset, often a fiat currency like the US dollar, to maintain price stability.
• On-ramp/Off-ramp: Processes for converting fiat currency into cryptocurrency (on-ramp) and cryptocurrency back into fiat currency (off-ramp).
• This "last mile problem" of local currency conversion and cash withdrawal remains largely unsolved.

Deep Dive into Plasma Finance

• Bkacio discusses his recent investment in Plasma, a project focused on stablecoin utility, highlighting a positive experience getting into the capped vault.
• He references a "flash note" analysis, suggesting a potential 30-40% APY on USDC deposits if total deposits reach $1.5-2 billion and the Fully Diluted Valuation (FTV) at Token Generation Event (TGE) is around $2 billion.
• APY (Annual Percentage Yield): The real rate of return earned on an investment, taking into account the effect of compounding interest.
• USDC (USD Coin): A stablecoin pegged to the US dollar, issued by Circle.
• FTV (Fully Diluted Valuation): The total value of a crypto project if all possible tokens (including those not yet in circulation) were issued.
• TGE (Token Generation Event): The moment a new cryptocurrency token is created and often distributed to the public or investors.
• The investment structure involves depositing USDC, a minimum 40-day lockup, and then an option to buy Plasma tokens based on the locked amount and duration.
• Bkacio views the 500 million FTV as a "pretty good deal," considering it a generally safe buy point for non-scam chains at TGE.
• Carlos notes the concentration of initial deposits: "the top 10 addresses got 40% of the 500 mil... And then if you look at the top 100 addresses, they account for 83% of the 500 mil." This suggests significant conviction from larger players.

Plasma: Risks and Strategic Considerations

• The primary risk identified is dilution, especially if deposit caps are continually raised. Danny draws parallels to multi-billion dollar inflows into past EigenLayer vaults.
• Another concern is the lockup duration. If the process extends from an expected 2-3 months to 6-12 months, capital becomes unproductive and faces increased dilution risk.
• Bkacio expresses confidence in the Plasma team's agility and believes they won't alienate investors with prolonged lockups, especially with competitors like Stable (backed by Bitfinex and Tether) emerging.
• USDT (Tether): The largest stablecoin by market capitalization, also pegged to the US dollar, issued by Tether.
• The team's timing is crucial. With Circle's stock performance and a strong stablecoin narrative, delaying launch could mean missing a valuation bump. Bkacio notes, "if you sit around 6, 8 months with funds locked up, like you might miss out on like a valuation bump when the thing goes live."
• Strategic Implication for Investors: Monitor Plasma's deposit cap increases and communication regarding TGE timelines. Extended delays could significantly alter the risk/reward profile.

Plasma's Technical Approach and Market Positioning

• Plasma is described as a Bitcoin side chain L2, EVM compatible, aiming for zero fees on USDT transactions (excluding complex smart contract interactions).
• Side chain: A separate blockchain that is attached to a parent blockchain (in this case, Bitcoin) using a two-way peg.
• L2 (Layer 2): A secondary framework or protocol built on top of an existing blockchain system (Layer 1) to improve scalability and efficiency.
• EVM (Ethereum Virtual Machine): A runtime environment for smart contracts on Ethereum and EVM-compatible chains.
• To prevent spam with zero-fee transactions, Plasma might implement minimum account value requirements, a solution Bkacio acknowledges isn't perfect but acceptable for an initial launch.
• The team's strategy involves posting chain data to Bitcoin periodically for security, allowing rollbacks to a final state if necessary.
• Actionable Insight for Researchers: The proposed spam prevention mechanism (minimum account values) on a zero-fee L2 warrants observation for its effectiveness and potential economic implications for user adoption.

Targeting Tron's Dominance in Emerging Markets

• Plasma is explicitly targeting Tron's market share in emerging economies like Turkey, Lebanon, and Argentina, where USDT is popular for payments due to lack of trust in local banking.
• Plasma's arguments against Tron are its rising transaction costs and centralization.
• However, Tron possesses a massive moat in terms of distribution, contracts, and existing payment provider networks. Bkacio states, "Tron is expensive. Yes. Tron is centralized. Yes. But it has probably the biggest moat in crypto, right?"
• Plasma's backing by Tether, Bitfinex, and key figures like Paolo Ardoino and Peter Thiel is seen as a significant advantage in challenging Tron.
• Strategic Consideration: While Plasma has strong backing, displacing an incumbent like Tron requires overcoming substantial network effects. Success will depend on superior user experience, lower effective costs, and strong business development for integrations.

Distribution Challenges and User Adoption for Plasma

• Danny highlights the difficulty of distribution, questioning how users in emerging markets, often relying on platforms like Binance, will access Plasma.
• Carlos suggests that "a plasma integration with this like Binance and these kinds of front ends would be like a huge first step to get adoption."
• Tron's gas incentivization (free daily transactions) presents another hurdle for Plasma, which might need more than just zero-fee USDT transfers to sway users.
• The core challenge is convincing users to switch from a familiar, albeit imperfect, network to a new one. Low fees alone might not be sufficient if the perceived safety and convenience of the incumbent are high.
• Actionable Insight for Investors: Track Plasma's partnership announcements, particularly with major exchanges and wallet providers, as these will be key indicators of its potential to gain traction in target markets.

Stablecoin Settlement: US vs. Emerging Markets

• The discussion shifts to whether Plasma will target US businesses for stablecoin settlement, with Danny questioning if US businesses are more reluctant to use USDT over USDC.
• Bkacio believes USDT is making a stronger push into the US market, citing Paolo Ardoino's "week in Washington" and the influence of figures like Howard Lutnick (Cantor Fitzgerald CEO, a large holder of Tether's reserves).
• However, the panel generally agrees with Jesse from Avara (formerly Aave) that stablecoin payment rails are less critical in developed countries with efficient systems like Venmo or Canada's e-transfer. Danny notes, "within the US that doesn't feel like a big unlock whereas elsewhere of course I mean you talked about the pain points."
• The real unlock for stablecoins is in emerging markets with capital controls and unreliable access to US dollars, and for cross-border payments.
• Strategic Implication: The primary growth vector for stablecoin settlement solutions like Plasma remains emerging markets and cross-border use cases, rather than displacing established domestic payment systems in developed nations.

The Persistent On/Off-Ramp Problem

• Carlos reiterates the "last mile problem": "when you send like a USD stable coin to an emerging country like the biggest problem today is one how do you convert that to the local currency and two how do you like exchange that for like cash."
• High fees from services like MoonPay (cited at ~3%) or credit card companies (up to 6%) for on-ramping, and unfavorable exchange rates from "free" providers, make current solutions suboptimal.
• Danny mentions Sphere Pay as a potentially better option with lower fees (~0.1%) but questions its widespread availability.
• The difficulty lies in bridging on-chain assets with off-chain financial systems, especially for cash-based economies.
• Actionable Insight for Researchers: Innovations in decentralized and cost-effective on/off-ramp solutions, particularly those catering to cash-heavy emerging markets, represent a significant untapped opportunity.

Morpho's Structural Changes: Aligning Token and Equity

• Morpho announced that Morpho Labs is becoming a wholly-owned subsidiary of the Morpho Association (a French non-profit) to eliminate perceived conflicts between equity value and token holders.
• Carlos praises this move, highlighting the legal guarantee that the MORPHO token will be the sole form of value accrual, as the non-profit structure prohibits shareholder profit distribution. He states, "you kind of have like a a legal guarantee there that the Morpha token is the only way you can get some sort of upside exposure to Morpho."
• DAO (Decentralized Autonomous Organization): An organization represented by rules encoded as a computer program that is transparent, controlled by the organization members, and not influenced by a central government.
• Morpho advocates for reinvesting protocol profits into growth rather than immediate distribution via buybacks or staking yield, a long-term approach Carlos supports, comparing it to early-stage tech companies like Apple or Tesla that reinvested heavily.
• Strategic Implication for Investors: Morpho's model could set a precedent for resolving the token vs. equity conflict. Investors should monitor if this structure leads to more sustainable long-term value accrual for token holders compared to models focused on immediate fee distribution.

Debate: Profit Reinvestment vs. Token Buybacks

• Bkacio presents a counter-argument: in the current semi-mature crypto market, buyback programs signal value accrual to the token, especially when dual (equity and token) structures create uncertainty about the token's utility.
• He argues that crypto is still heavily narrative-driven (~70% narrative, 30% fundamentals), and buybacks can provide a valuation bump, attracting users who associate higher market caps with legitimacy.
• Danny suggests that if token-only structures become the norm, the need for buybacks as a signaling mechanism would diminish, allowing protocols to operate more like traditional businesses.
• Carlos believes Morpho's approach offers "another way to signal alignment without giving back this optionality of investing fees in growth," potentially more viable in European jurisdictions with greater structural flexibility.
• Actionable Insight for Researchers: The debate highlights differing philosophies on token value accrual. The success of models like Morpho's versus those employing buybacks will be a key area to study for optimal tokenomic design.

Exploring New Crypto Ecosystems and Apps

• The conversation turns to current areas of exploration, with a general sentiment that the market feels "a bit boring" and lacks "zero to one innovations."
• Hyper EVM: Carlos has experimented with apps like Kiton Swap (an AMM) and Felix (a Liquity fork) on Hyper EVM, noting many are copycats but acknowledging this is typical for new ecosystems. He mentions Liquid Launch as a "pom pom version of the Hyper EVM" distributing 100% of fees to token holders.
• AMM (Automated Market Maker): A type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets.
• Hyper EVM: An EVM-compatible execution environment, likely associated with the Hyperliquid derivatives exchange, aiming for high performance.
• Bkacio is also on Hyper EVM, primarily for potential airdrops, and has been trading on Lighter (another perp DEX) for similar reasons. He expresses disappointment with the lack of truly novel experiences compared to previous cycles.
• Danny mentions Axiom on Solana (a trading bot platform) as a potential airdrop candidate that would "be breaking the mold" as top Solana bots haven't historically done token drops.
• Avalanche: Sharples' post about The Arena, a SocialFi launchpad app whose launched tokens surpassed $100 million in market cap, is noted as an interesting development in a smaller ecosystem.
• SocialFi: A combination of social networking and decentralized finance (DeFi).
• Abstract: Mentioned as a chain where Bkacio last found a "pure dog" (high-risk, speculative) investment.
• Strategic Implication for Investors/Researchers: While major chains might seem saturated, niche ecosystems like Hyper EVM or specific app categories like SocialFi on Avalanche could offer early-mover advantages or airdrop opportunities. The lack of "0-to-1 innovation" suggests a market ripe for disruption.

The Role of "Wealth Effect" and Community in New Chains

• Carlos argues that technological improvements are no longer the primary driver for new chain success. Instead, "bigger like catalyst is just like this wealth effect that's flowing from the native asset to like project tokens of the of the new chain."
• He cites Solana's late 2023/2024 run-up, where the rise in SOL's price fueled growth in its ecosystem projects. This is why he's interested in Hyper EVM, not for superior tech, but for the potential wealth effect from Hype and its community.
• Bkacio agrees, noting Hyper EVM is objectively a "very poor chain right now" with low deposit caps (e.g., 30 BTC in Hyperlend), but its active community and airdrop potential make it worth monitoring.
• Actionable Insight: When evaluating new chains or ecosystems, consider the strength of the community and the potential for a "wealth effect" from the native token as much as, or even more than, purely technical specifications.

Final Thoughts on Market Sentiment and Opportunities

• The general sentiment is that the current cycle offers fewer "easy win" opportunities compared to 2021, where rotating capital between chains and their DEX tokens was a viable strategy.
• Danny notes that new app launches are often incremental improvements rather than groundbreaking innovations.
• Carlos points out that opportunities still exist on established chains like Solana, with protocols like Exponent, Radex (yield trading), Loopscale (on-chain order book lending), and Fragment (restaking) potentially offering farming opportunities, though they often involve points programs.
• The market feels more researched, with anticipated FTVs and yield calculations diluting the potential for outsized "100x" returns from small investments.
• Strategic Consideration: Investors and researchers should focus on identifying protocols with strong fundamentals and community engagement, even within established ecosystems, and be prepared for more nuanced value accrual mechanisms like points programs rather than immediate token launches.

This episode underscores that while stablecoins offer immense potential, their real-world adoption hinges on solving the on/off-ramp and local currency conversion challenges, particularly in emerging markets. Investors and researchers should monitor projects tackling these "last mile" issues and evolving tokenomic models like Morpho's, which seek better alignment between protocol growth and token holder value.