This episode reveals that the real stablecoin war isn't about payments, but about capturing the multi-trillion dollar on-chain Foreign Exchange (FX) market by solving the deep-rooted friction between fiat and crypto.
Analyzing the Crowded Stablecoin Chain Market
- Han, co-founder and CEO of Codex, begins by addressing the competitive landscape, which includes players like Stripe's Tempo, Circle's Arc, Plasma, and the incumbent Tron. He argues that while a venture capital slide might show a crowded market, the reality is that each project is pursuing a fundamentally different strategy.
- From Han's perspective, Codex rarely encounters these competitors in the market because their approaches and target customers differ significantly.
- He suggests that the category is so new that “nobody really knows what they are doing quite yet,” with each team exploring different paths in a vast design space.
Deconstructing Competitor Strategies
- Han provides a critical breakdown of the two dominant approaches he sees competitors taking, highlighting their potential flaws.
- The "Bare Chain Playbook": Han describes this strategy, used by chains like Plasma and Stable, as a cycle of token incentives to attract mercenary capital.
- This playbook involves launching a token, attracting liquidity with high yields, and then forking existing DeFi applications to try and make the capital "sticky."
- Han is skeptical of this model, stating, “We've seen this movie play out before... people will dump the token, the price will go down... and then eventually it all goes to zero.” He views it as an unsustainable approach that fails to create differentiated value.
- The Neutrality Problem: For chains backed by major fintech players like Stripe (Tempo) and Circle (Arc), Han identifies a critical business challenge: neutrality.
- Neutrality in this context refers to a platform's ability to be an unbiased foundation for all participants, including competitors.
- He questions whether a competing fintech would build its future on Stripe's infrastructure or if a rival stablecoin issuer would commit to Circle's chain.
- Han argues this lack of neutrality is a major barrier to adoption at the executive level, as companies are unwilling to cede control to a direct competitor.
Codex's Core Bet: On-Chain Foreign Exchange (FX)
- David, the host, questions if all these chains are ultimately converging on the same "payments chain" endgame. Han reveals Codex's distinct and more ambitious strategy: dominating wholesale Foreign Exchange (FX)—the market for converting one currency into another.
- Han's central thesis is that since most cross-border transactions involve an FX component, the chain that becomes the cheapest and most efficient venue for FX will naturally attract massive stablecoin flows.
- Codex's focus is not just on stablecoin-to-stablecoin swaps (e.g., USDT to USDC) but on the far more complex fiat-to-stablecoin swaps.
- Han emphasizes a contrarian focus on solving real-world financial plumbing: "You need to delete the border between fiat and crypto... that means like understanding the fiat infrastructure, which again is very contrarian."
The "Golden Goose": Solving Fiat Friction
- The conversation pivots to what Han calls "the gunk"—the messy, regulated, and operationally intensive work of bridging traditional finance with crypto. This is where Codex believes the real value lies.
- The "stablecoin sandwich" (fiat -> crypto -> fiat) is often too expensive to be practical due to high on-ramp and off-ramp costs.
- On-ramps are services that convert traditional fiat currency (like USD) into cryptocurrency. They are notoriously difficult businesses due to fraud risks like chargebacks.
- While competitors focus on lowering on-chain transaction fees (which are already low for large transfers), Han argues Codex is focused on solving the customer's actual bottleneck: the cost, speed, and friction of moving between fiat and stablecoins.
- Codex aims to provide wholesale users with instant (sub-10 minute) and cheap access to stablecoins, a significant improvement over the traditional banking system's T+2 settlement times that even affect stablecoin issuance today.
Targeting Exotic Currencies and Restructuring Global Commerce
- Codex's FX strategy extends beyond major currency pairs, with a specific interest in "exotics"—currencies from smaller or emerging economies.
- Han notes that historically, non-USD stablecoins have suffered from low liquidity and demand, making on-chain FX impractical. Codex believes it has the "secret sauce" to solve this.
- Strategic Insight: Han reveals a major trend emerging on-chain: direct swaps between non-dollar currencies (e.g., Malaysian Ringgit to Singapore Dollar) without using the US dollar as an intermediary.
- This development represents a "radical restructuring of how markets work" and has significant geopolitical implications, as other nations observe the "wonderful structural buyer of US treasuries" that dollar-backed stablecoins have created and may want to replicate it for their own currencies.
The Strategic Choice for an Ethereum Layer 2
- Han explains the deliberate decision to build Codex as a Layer 2 (L2)—a secondary protocol built on top of a base blockchain like Ethereum to improve scalability—rather than a standalone Layer 1.
- Economic Argument: The vast majority (around 60%) of stablecoin value resides on Ethereum. Codex's mission is to ensure Ethereum maintains this dominance by providing a specialized, high-performance environment for them.
- Technical Argument: Building on Ethereum provides an "incredibly hardened and robust stack" that has been battle-tested for years. It also offers users a crucial security guarantee that standalone chains cannot: the right to exit their funds back to the Ethereum mainnet if the L2 fails.
- Ideological Argument: Han, who has deep roots in the Ethereum community from his time at Optimism, expresses a belief in Ethereum as the most credibly neutral settlement layer for the world.
The Evolution of L2s: From General-Purpose to Specialized Chains
- The discussion broadens to the evolving role of L2s within the Ethereum ecosystem. Han argues that the era of general-purpose rollups is giving way to a new model of specialized, application-specific chains.
- He makes a provocative claim: "General purpose L2s are parasitic to L1." Post-EIP-4844 (which significantly lowered data costs for L2s), a general-purpose L2 that simply mirrors the L1's functionality splits the user base and fragments liquidity without adding unique value back to Ethereum.
- Actionable Trend: The future, according to Han, is for L2s to focus on use cases that the L1 cannot do well, such as running tight, product-focused development loops for a specific vertical like stablecoins.
- This "win-win" model allows the L2 to innovate rapidly while strengthening the entire Ethereum ecosystem by attracting new flows and functionality. An L2 must "earn its keep" by being net-additive, not just by existing.
Conclusion
This episode argues that the winner of the stablecoin chain war will be the platform that masters on-chain FX by solving deep-seated fiat integration problems. For investors and researchers, Codex's specialized L2 strategy on Ethereum presents a clear thesis: focus on the "gunk," not just throughput, to capture real-world financial flows.
