All About USDT and Yield-Bearing Stablecoins

The Spaces gathered projects across the Plasma ecosystem to examine the state and trajectory of stablecoins. The host framed Plasma as a fast, low-fee, stablecoin-first chain already moving billions, then guided a roundtable with Sam (USDAI), Sean (FRAX) and Kenny (LayerZero). Speakers agreed the market is still very early despite a ~$300B cap, with the next wave driven by retail adoption and neobank-style products. They distinguished payment stablecoins (commoditizing, service-led differentiation) from strategy-backed pools (e.g., GPUs via USDAI, basis trades via Athena), and favored collaboration over competition while noting app-specific stablecoins and native deployments reduce liquidity fragmentation. Plasma’s architecture was seen to increase utility and velocity through abstraction, low fees, native integrations, and mechanisms like paymasters. For liquidity, early incentives help but are mercenary; durable stickiness comes from the app layer, aligned models like V3,3, deep mint/redeem, and sharing underlying yields (e.g., frxUSD). On DEX evolution, priorities are UX, distribution, governance alignment, and more capital-efficient trading (custom curves, on-chain order books) plus pushing toward 1:1 fungibility across major stablecoins. The session closed with confidence that Plasma is purpose-built to be a stablecoin superchain and a core hub for capital allocation.

Plasma Ecosystem Roundtable — Stablecoins: Adoption, Collaboration, Velocity, Liquidity, and DEX Evolution

Participants and Roles

• Host (Lighthouse): Moderator from Lighthouse, a ve(3,3) DEX aiming to be Plasma’s liquidity backbone.
• Sam (USD AI / USDAI): Growth lead; building a strategy-backed stablecoin that finances AI by enabling GPU owners to tokenize GPUs and borrow on-chain.
• Kenny (LayerZero): Leads ecosystem growth and go-to-market; interoperability provider behind omnichain mint/burn transfers (OFT standard) for stablecoins across chains.
• Sean (Frax): Representative from Frax; discussed frxUSD’s model and incentive design in ve(3,3) ecosystems.

Opening Context: Plasma’s Positioning and Early Traction

• Lighthouse framed Plasma as a purpose-built chain optimized for stablecoin flow (ultra-low fees, high throughput, native integrations), positioning it as a “stablecoin superchain.”
• The host noted Plasma’s launch processing billions in stablecoin transfers and attracting large inflows, highlighting zero-fee transfers and early momentum.
• LayerZero added that approximately ~$6B in stablecoin liquidity moved from other chains to Plasma in the first days via omnichain mint/burn transfers, underscoring interoperability as a key driver of adoption.

Stablecoin Adoption Curve and TAM

• Prompt: With global stablecoin market cap ~$300B, are we early/mid/late, and what is the true TAM?
• Sam (USDAI):
  • We are extremely early; “add a zero” to the total supply before calling it anything but early.
  • Past cycles primarily built infra for crypto-native ecosystems (money markets like Aave, Euler). The next phase is bringing stablecoins to everyday retail via neobanks (including those being built on Plasma) and other mainstream use cases.
  • Expect a massive influx as stablecoins are simply better for many use cases (settlement assurances, costs).
• Kenny (LayerZero):
  • Stablecoins are a clear winner of this cycle.
  • Earlier, many stablecoins were RWA-heavy (tokenized treasuries). Now, models broaden: USDAI’s GPU-backed finance, Athena’s basis-trade backed model—diversifying beyond pure treasuries.
  • Intersection with fiat rails is already emerging (neobanks). Examples cited include initiatives like “Ether Bison” cash card and Revolut—trend toward seamless real-world payments with stablecoins.
• Key takeaway: TAM likely approaches universal payments and savings use-cases—both crypto-native and mainstream retail. The “bank account replacement/upgrade” narrative materially expands addressable users.

Stablecoins vs Fiat Rails — Replacement or Complement?

• Sam (USDAI):
  • Complementary systems: crypto excels in settlement assurances (e.g., sending $1B on-chain for <$1), while fiat rails offer regulation, legacy institutional networks, and established processes.
  • Expect coexistence where stablecoins handle high-efficiency settlement and programmable finance; fiat rails provide regulatory scaffolding and institutional integrations.
• Kenny (LayerZero):
  • Convergence already underway via neobanks and fintech integrations; the lines between crypto and traditional rails blur as user experiences become payment-first, chain-abstracted.

Competition vs Collaboration Among Stablecoins

• Sam (USDAI):
  • Payment stablecoins will become commoditized due to similar regulatory constraints and asset requirements.
  • Innovation will be concentrated in strategy-backed stablecoins—generalized lending pools deploying capital into specific strategies (USDAI loans to GPUs, Athena’s basis trade).
  • Early signs of product-market fit (Athena) suggest strong growth; USDAI sees strong borrow-side demand.
• Sean (Frax):
  • Collaboration is the right framing—market growth is massive; builders who move fast and ship quality tech will gain share.
  • Traditional banks’ inertia (staff, overhead, legacy infrastructure) delays their ability to issue and compete; agile crypto builders can capture significant market share.
• Sam (USDAI) on service layers:
  • Value-add in commoditized payment stablecoins comes from the services built on top (distribution, bridging, banking features, etc.), not yield capture.
  • Circle’s public reporting trendlines suggest value accrues to service layers; examples include LayerZero’s bridging and Frax’s ecosystem services.
• Kenny (LayerZero) on liquidity cohesion:
  • Not purely black-or-white; collaborations exist, but competitive dynamics appear when applications enshrine their own stablecoins.
  • Improved native deployments and OFT-like omnichain models reduce fragmented/wrapped liquidity.
  • Examples: Hyperliquid’s USGH, Phantom’s cash stablecoin; app-driven issuance can be potent but may introduce complexity.

How Plasma’s Architecture Changes Utility and Velocity

• Sam (USDAI):
  • Chain-level optimizations should abstract complexity for users (they just see USDT/USDC/etc.) and allow seamless movement.
  • Builders can focus on service layers: yield deposits (like USDAI’s), swaps, and other programmable financial services.
• Sean (Frax):
  • Neobanks are the macro narrative: most people have bank accounts, but they deliver limited user returns.
  • Plasma-aligned neobank models upgrade banking for all—including the unbanked—expanding to near-global TAM.
• Kenny (LayerZero):
  • High performance and low fees naturally unlock higher velocity for stablecoins.
  • Paymasters can sponsor user fees, further reducing friction for transfers and app interactions.
  • Better chain infra yields execution environments where stablecoin volume turns continuously, supporting payment-grade throughput.

Building Deep Stablecoin Liquidity: Emissions, Bribes, POL, and App-Layer Stickiness

• Sean (Frax):
  • ve(3,3) aligns incentives effectively for long-tail assets and ecosystem growth.
  • Over time, deep mint/redeem across payment stablecoins may reduce reliance on traditional LPs for highly liquid pairs, but LPs remain crucial for long-tail markets.
  • Frax’s approach: when deploying frxUSD (backed by tokenized treasuries in some contexts) to a chain, forward underlying treasury yield back as LP incentives—beating typical USDC pair incentives and improving capital efficiency.
  • Philosophy: share more rewards with those providing capital (LPs, lockers), aligning with ve(3,3) and neobanks’ competitive edge vs traditional banks.
• Sam (USDAI):
  • Distribution is everything at launch: Plasma’s early window is critical to drive inflows and make them sticky.
  • Liquidity is notoriously mercenary; the plan must extend lifecycle and bootstrap sustainably.
  • The ecosystem needs protocols that can absorb large liquidity and meet yield demands (e.g., principal/yield token structures) to retain hundreds of millions in inflows.
  • For USDAI’s loan origination, the network must support rapid capital-raising (e.g., $200M/day). Only a few L2s and Plasma can realistically do this; Plasma is poised to become a key capital allocation hub.
• Kenny (LayerZero):
  • Emissions/bribes help bootstrapping but attract mercenary capital.
  • Sticky liquidity comes from the application layer—high intrinsic yields users can loop and compelling UX that keeps users engaged.
  • Incentives as a catalyst; long-term retention requires apps that users value.

DEX Evolution for Stable-Centric Trading (UX vs Governance/Incentives)

• Sam (USDAI):
  • Ultimately, it’s about reducing LPs’ cost of capital and delivering sufficient base organic yields to keep deposits sticky.
  • ve(3,3) offers a strong model for aggregating rewards and distributing them effectively.
• Sean (Frax):
  • Winning formula combines: strong UX, wide distribution, deep ecosystem alignment, and well-designed incentives.
  • Early entry in new ecosystems plus ve(3,3) can compound growth.
  • Frax’s model of forwarding underlying yield back to LP incentives sets a higher baseline vs typical USDC pairs, improving capital efficiency and user alignment.
• Kenny (LayerZero):
  • Traditional XYK curves may be suboptimal for stable-stable trading.
  • Consider more capital-efficient mechanisms: Uniswap v4 hooks for custom curves, on-chain CLOBs for stable pairs, and other emerging primitives.
  • Goal: deeper liquidity and more efficient execution for stablecoin markets at scale.
• Sam (USDAI) on fungibility and costs:
  • Fees are already very low (~0.01% for stable swaps). Next frontier is near-1:1 fungibility across stablecoins (USDT↔USDC↔frxUSD, etc.) with negligible cost.
  • Users shouldn’t pay $5 on a $1,000 swap to change stablecoin types; interoperability (e.g., LayerZero-powered routing) and better DEX logic can enable cheap, seamless conversion and optimal capital deployment into yield strategies.

Key Highlights and Takeaways

• Stablecoin adoption is still early relative to potential TAM; mainstream neobank experiences and retail-facing integrations will expand usage well beyond crypto-native contexts.
• Payment stablecoins trend toward commoditization; differentiated value moves to service layers and strategy-backed stablecoins (GPU loans, basis trades, etc.).
• Plasma’s chain design (low fees, high throughput) catalyzes stablecoin velocity and abstracts complexity, making it well-suited for neobank models and high-frequency payment flows.
• Interoperability (LayerZero’s OFT) and native deployments reduce fragmented/wrapped liquidity, enabling cleaner and safer cross-chain value transfer.
• Liquidity bootstrapping should balance near-term incentives with long-term app-layer stickiness (high intrinsic yields, UX). ve(3,3) models align ecosystem incentives; forwarding underlying yield into LP incentives (as Frax does) increases capital efficiency.
• DEXs should evolve beyond plain XYK into more capital-efficient stablecoin trading mechanisms (custom curves, hooks, on-chain order books), and pair that with governance/incentives and UX that serve stable-centric markets.

Closing Notes

• Despite early technical issues, the roundtable emphasized Plasma’s rapid early traction and readiness for stablecoin-centric scale.
• Lighthouse and partners are focused on building transparent, efficient, community-aligned infrastructure.
• Participants encouraged following USDAI, Frax, LayerZero, and Lighthouse for updates and future sessions.