Stablecoins, Prediction Markets, Tokenized Equity, and New Ways to Make Money Online.
Author: Alana Levin, Variant
Translation: Deep Tide TechFlow
Over the past year, the crypto industry has undergone significant changes.
In terms of regulation, the U.S. Congress has made notable progress with the introduction of the GENIUS Act and the establishment of clear rules regarding stablecoins. The White House has formed a Working Group on Digital Asset Markets, which has engaged with many industry participants and is committed to providing clear regulatory guidance for the industry. Meanwhile, the U.S. Securities and Exchange Commission (SEC) has announced Project Crypto, aimed at making the U.S. a cryptocurrency hub by exploring how to tokenize a broader range of assets in financial markets.
Builders in the crypto industry have also made significant strides. There are now multiple large and liquid prediction markets, with more new markets set to launch. The supply and usage of stablecoins have reached historic highs, with a broader demographic holding these assets. Many on-chain protocols have achieved revenues in the tens to hundreds of millions, with several protocols also serving as developer platforms, fostering an active startup ecosystem that is also generating revenue! It can be said that this is one of the best times for builders in the crypto industry.
One of my favorite sayings is: "The total addressable market (TAM) for digital assets is the largest it has ever been, and will be the smallest it will ever be in the future." This is particularly true at present. Therefore, based on these developments, I have compiled some exciting startup ideas. If you are a builder considering these areas, feel free to reach out to me!
Stablecoin-Driven Markets
Current discussions about stablecoins are mostly focused on their payment use cases. However, historically, new markets that require stablecoins have played a larger role in driving their adoption and growth. For example, the growth of Asian crypto exchanges has been a significant factor in the rise of Tether (USDT): traders have chosen to hold USDT as a value storage tool on exchanges instead of converting crypto profits into local fiat currencies. Similarly, the DeFi boom in 2020 provided new use cases for USDC, allowing it to establish a foothold on platforms that require digital dollars.
Currently, the total amount of circulating stablecoins is approaching $300 billion, sparking strong interest in their payment use cases. However, the payment space seems more like an opportunity for existing businesses, as their distribution and infrastructure give established fintech companies an advantage over new startups.
I am looking for new markets uniquely driven or created by stablecoins. We currently have two stealth investment projects that fit this theme: one is focused on developing infrastructure that makes all stablecoins feel interchangeable to end users; the other is focused on building local liquidity markets.
What are the potential application areas for stablecoin-driven markets? Here are three ideas:
- New Leverage Tools Requiring Instant Funding
Stablecoins enable 24/7 transfers, meaning users can instantly inject more collateral into their accounts (whereas in traditional finance, exchanges may need to pre-fund margin accounts while waiting for bank transfers to complete).
- Intercompany Lending
I believe many companies will hold a portion of their cash and cash equivalents in stablecoins in the future. Stablecoins allow for 24/7 transfers, while traditional financial systems may take days and incur high costs for fund transfers. Holding stablecoins not only enables companies to earn returns in broader and more creative ways, such as participating in short-term capital markets (like the overnight repo market) or providing on-chain liquidity, but also significantly improves capital efficiency.
- Global Lotteries
Crypto technology provides channels for accepting, aggregating, and distributing global funds. Not only can stablecoins help scale lotteries, but their programmability also allows deposits and winnings to be used in more interesting and innovative ways.
Stablecoin-driven markets can emerge in several ways: a) stablecoins as part of at least one trading scenario; b) products built on large (idle) stablecoin capital pools; c) new markets leveraging stablecoins to achieve global economies of scale.
Second-Order Prediction Market Opportunities
There are currently several large and growing prediction market platforms, with a new batch expected to launch this fall. Market trading volumes have remained strong throughout the year, debunking critics' claims that prediction markets only have product-market fit (pmf) during election seasons.
This market landscape creates more pioneering opportunities for entrepreneurs to build around prediction markets—leveraging the liquidity of new markets, the broad distribution of users, and the fragmentation of market platforms. Here are two products I particularly hope to see:
1. Conditional Betting. In sports betting, "parlays" are a common play. However, because participants in prediction markets are betting against other users rather than a bookmaker, this play is difficult to implement in prediction markets. This difference means that bettors need to wager against multiple independent counterparties rather than a single counterparty (i.e., the bookmaker). Therefore, when one leg of a parlay fails, it becomes more challenging to close the bet, and pricing and controlling overall risk become more complex.
One possible solution is to allow users to effectively bet against just one counterparty. For example, a third-party service could be built based on open prediction markets to act like a bookmaker. This service could use the liquidity in prediction markets to set odds and offer parlay betting. It could operate across platforms and accept third-party liquidity to support its strategy (similar to Hyperliquid's HLP). If these parlay plays focus on areas like Bitcoin price movements, the service could also use other mechanisms to hedge overall risk.
2. Betting on Users. An important feature of platforms like Polymarket is the leaderboard, which ranks traders based on profitability and trading volume, allowing third parties to view the positions held by these top users. Suppose I believe a particular trader will perform well; my "bet" is that this trader's bets will perform well. Currently, my main option is to manually copy this user's trades. However, future product forms may allow users to deposit funds into a pool for professional traders to use for their bets. This design space becomes even more exciting when introducing AI agents participating in market betting—humans can provide capital through the pool and offer information and feedback for these agents to use.
The growth of liquidity in prediction markets, increased user interest, and the expansion of supporting platforms provide possibilities for many second-order opportunities. Leverage, market exposure, and market popularity (user participation) are all areas worth paying attention to.
Tokenized Equity Coordinators
We are in the early stages of equity tokenization. A range of architectures is emerging, and this is becoming increasingly clear.
Some products, such as Robinhood's stock tokens, are designed solely to provide price exposure to real-world stocks. These tools are entirely synthetic: they track price movements through a series of structured derivatives without holding the actual stocks.
Other products, such as BackedFi's xStocks, hold the target stocks and create their digital representations (similar to how stablecoin issuers hold fiat dollars and create tokenized wrappers for these assets). These products not only provide a more direct and secure asset price connection but also allow for the redemption of the underlying stocks.
Finally, there are more native on-chain stocks. Last week, Superstate announced that it has directly issued Galaxy Digital common stock on-chain—a tokenized asset that enjoys the same rights and benefits as traditional stocks.
These are various constructs of "tokenized stocks." It is still unclear which structure will conform to a power law (Deep Tide Note: In a power law distribution, the probability of most events occurring is small, while the probability of a very few events occurring is large) and emerge as the winner. Consumers may use many of these tools without fully understanding the complete constructs. Therefore, the interface will be responsible for selecting and listing different tokens. I suspect that liquidity and compliance will be the main factors for listing, but as long as multiple tokenized stock constructs meet the interface's standards, various constructs can be integrated at the underlying level. We could easily end up in a scenario where the interface offers BackedFi's xAPPL but provides a world of GLXY issued by Superstate, as each transfer agent provides the most liquid on-chain market for their respective stocks. For consumers, these should all look like ordinary stocks.
Similar patterns are also emerging in the stablecoin space. There are many different stablecoins on the market that aim to replace the dollar, but not all of them are interchangeable. As a result, some networks have emerged to coordinate different stablecoins, allowing end users to feel as if they are simply using dollars. With the continued growth and evolution of the equity tokenization category, there is also an opportunity to build similar infrastructure for equity tokenization.
The Next Important Area: New Ways to Make Money Online
A shocking and recurring theme I heard this summer is that many recent college graduates are struggling to find jobs. I thought we had a few more years before AI would erode some of the more complex entry-level positions, but it turns out I was wrong.
As a result, I believe that the way people allocate their time will undergo a significant change in the coming years. Secondly, people will have more free time and will be more eager to make money through creative means. This could manifest in many ways: more people participating in financial markets, the financialization of the entertainment industry, and an expanding variety of content types that people can create and monetize online, among others.
Cryptocurrency provides some of the most practical tracks for building such products and services. It offers cheap global funding channels, meaning the potential customer base is almost limitless. Anyone of any age with a wallet and internet connection can build and earn.
There are many companies in the Variant portfolio that align with these themes. Zora provides creators with new tools for media monetization. Remix helps players of all ages create, publish games, and monetize them. The Clearing Co is working to build and expand tradable markets.
The design space for new products and services that help people make money online remains vast. Whether through content, creativity, investment, entertainment, or other means, making money has always been a killer app, and crypto technology provides the best infrastructure for people to achieve this.
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