Original｜Odaily Planet Daily (@OdailyChina)
“The first publicly traded stablecoin in the U.S.” Circle's stock price continues to soar, igniting capital enthusiasm for blockchain concept stocks and prompting traditional companies to take action. Particularly, the easing of policies—such as the U.S. stablecoin regulatory bill "Genius Act" and Hong Kong's stablecoin regulatory bill—has led many traditional companies to seek a slice of the lucrative stablecoin pie.
In response to this demand, the established stablecoin issuer has announced the establishment of Paxos Labs, aimed at helping institutions issue branded stablecoins, deploy tokenized yield strategies, and manage tokenized assets. Odaily Planet Daily will explore the development of this platform and whether the underlying Stablecoin as a Service (SaaS) business model is viable, for readers' reference.
Paxos Labs: A “SaaS” Platform with High Expectations from Paxos
On June 19, Paxos officially announced the launch of Paxos Labs—“an embedded on-chain financial product infrastructure layer.” Just looking at this name, it’s hard not to associate it with the layers of blockchain networks like L1, L2, L3.
Detailed Explanation of Paxos Labs: Aspiring to Become the Infrastructure for Branded Stablecoins
The platform's specific introduction mentions: “We help platforms launch: branded stablecoins; yield strategies; structured tokenized assets; all of which are directly reflected in the user experience.”
After mentioning the disconnect between demand and supply sides, Paxos Labs emphasized: “Through Paxos Labs, platforms can leverage the launch of branded stablecoins to develop their brand and create their economic systems; allow users to earn yields through programmable yield vaults; provide customized structured products, such as tokenized fixed income strategies.”
In summary, Paxos Labs will help institutions and platforms achieve three main objectives:
Issue their own stablecoins and connect to the entire crypto economy;
Facilitate corresponding stablecoin users to earn through stablecoin-based financial management;
Enable the conversion of traditional financial instruments (such as bonds and notes) into on-chain assets for flexible use.
As for the underlying guarantees, they mainly include:
DeFi native infrastructure;
Enterprise-level reliability;
Integration of RWA assets from a trusted issuer network.
At the end of the official announcement, Paxos Labs left a corresponding “contact” link—https://paxoslabs.com/connect; and stated: “If you are a platform integrating DeFi products or an RWA issuer preparing to accelerate asset distribution, please feel free to reach out.”
Six Months of Internal Incubation, Planning to Become a One-Stop Shop Within 18 Months
Paxos Labs co-founder and head Bhau Kotecha stated that Paxos Labs was incubated internally by Paxos, taking about six months, driven by the growing B-end demand to connect with the DeFi market and RWA assets; its advantage lies in easily integrable APIs, allowing clients to quickly integrate DeFi products without the complexity of connecting to DeFi systems.
When discussing future development plans, Bhau stated: “In the next 12 to 18 months, Paxos Labs aims to become a one-stop shop for institutions, providing on-chain product integration services to help partners improve user engagement, retention, and monetization.”
Previously, Paxos's institutional-grade stablecoins included: Paxos Digital's Global Dollar (USDG) issued in Singapore; Lift Dollar (USDL) issued by Paxos International; and PayPal USD (PYUSD) issued by Paxos Trust Company on behalf of payment giant PayPal. Additionally, Paxos collaborated with Binance in 2019 to issue BUSD, which once ranked among the top three stablecoins by market capitalization.
The Biggest Feature of Paxos Labs: Focused on Institutions and Product Offerings
It is worth mentioning that, unlike companies like Fireblocks, Anchorage, or Galaxy Digital that focus on custody or direct access to DeFi protocols, Paxos Labs primarily provides APIs and related infrastructure services for institutions, facilitating them to offer on-chain products to end users.
Moreover, Bhau clearly stated: Paxos Labs will leverage Paxos's regulatory expertise, enterprise-level infrastructure, and extensive experience in building secure and compliant financial systems, collaborating with multiple asset issuers to support customized stablecoins, not just Paxos.
In other words, Paxos Labs acts more like a technology infrastructure provider, serving as an intermediary connecting asset issuers with institutions that have stablecoin issuance needs.
The SaaS (Stablecoin as a Service) Model: Market, Revenue, and Mainstreaming of Stablecoin Payments
In the current landscape where countless stablecoin projects are emerging, Paxos Labs has shifted its focus to numerous platforms and institutions with “stablecoin issuance needs,” which is undoubtedly a strategically higher choice—transforming from an upstream role in the industry to a source role. The establishment of its SaaS services and business model relies on three major influences:
Stablecoin Market Size: A Vast Market of $3.7 Trillion
U.S. Treasury Secretary Janet Yellen previously publicly stated that reports predict the stablecoin market size could reach $3.7 trillion by the end of the next decade. With the passage of the GENIUS Act, the outlook for the stablecoin market will be even brighter. The stablecoin ecosystem will drive private sector demand for U.S. Treasury bonds, which are the backbone of stablecoins; this new demand is expected to lower government borrowing costs, help control national debt, and potentially attract millions of new users globally to the dollar-based digital asset economy. This is a win-win situation for all participants.
In contrast, the current stablecoin market size is only about $250 billion, indicating nearly 15 times the growth potential, making the stablecoin market ripe for opportunity.
Diversified Revenue Sources: U.S. Treasuries, Gold, and Commercial Paper
Aside from the vast market, a significant reason attracting countless institutions to enter the stablecoin space in the short term is the strong revenue-generating capability of this business: USDT issuer Tether's net profit in 2024 is expected to exceed $13 billion; USDC issuer Circle's net profit in 2024, after excluding revenue sharing with partners like Coinbase and Binance, is still $156 million. For many institutions, stablecoins represent a surefire business, as they essentially function as a “cost-free money printing” “on-chain Federal Reserve.”
Since June, the daily trading volume of dollar stablecoins has exceeded $100 billion, significantly surpassing the trading volumes of Bitcoin and Ethereum. According to Tether and Circle's quarterly reports, it can be estimated that among the $250 billion in dollar stablecoins, U.S. Treasuries account for at least 80% of the reserve assets, which translates to an additional $200 billion demand for U.S. Treasuries. According to Standard Chartered Bank's predictions, by 2028, the stablecoin market size will reach $2 trillion, corresponding to a demand for U.S. Treasuries of $1.2 trillion to $1.6 trillion, making stablecoin issuers the second-largest buyers of U.S. Treasuries after the Federal Reserve. The yields of U.S. Treasuries, around 4%-5%, represent the largest source of revenue for countless stablecoin issuers. (For more information on Tether's business model, see “The First Stablecoin USDT Hits New Market Cap High, Revealing the Billion-Dollar Empire Behind Tether”.)
Additionally, Tether's reserves include gold, Bitcoin, and some commercial paper, which also contribute to its revenue composition. The diversification of revenue sources is one of the key reasons institutions are flocking to stablecoins.
Industry Trend: Mainstreaming of Stablecoin Payments
In the long run, the mainstreaming of stablecoin payments is also a significant trend. Following the electronic payments led by PayPal and mobile payments led by WeChat Pay and Alipay, stablecoin payments led by USDT and USDC are gradually becoming an undeniable industry force globally.
Compared to the slow and cumbersome Swift system, on-chain stablecoin payments offer low costs and high efficiency, clearly outperforming traditional payment channels. With stablecoin regulatory bills about to be implemented, the mainstreaming of stablecoin payments is inevitable, which is also why domestic internet giants like Alibaba and JD Group are racing to seize positions in this space. (For more on JD Group's entry into stablecoins, see “After Missing the Payment Revolution for a Decade, Is Liu Qiangdong Looking to Stablecoins for JD's 'Second Payment Revolution'?”.)
Based on the above reasons, Paxos Labs views SaaS as a mature technical solution and attempts to establish its own “branded stablecoin issuance landscape.” If all goes well, the stablecoin projects that Paxos Labs participates in issuing will collectively build a stablecoin ecosystem that can compete with USDT and USDC.
Risks and Challenges of SaaS Services: Distribution, Revenue, and Application Scenarios
Although the issuance of stablecoins and other embedded on-chain products seems like a good business, the concepts of “profitable business” and “valuable business” do not always overlap. The SaaS services provided by Paxos Labs are not without their challenges. Specifically, the challenges faced by this business mainly include:
Distribution Path: Limited Channels, Concentration of Leaders
BitMEX co-founder Arthur Hayes previously commented that the key to the success of stablecoins lies in distribution channels, which are currently mainly achieved through cryptocurrency exchanges, social media platforms, or traditional banks.
Tether has become the dominant stablecoin globally, particularly in the Global South market, thanks to its partnership with Bitfinex (first-mover advantage) and the trust established in the Greater China region; while Circle distributes USDC through its partnership with Coinbase, its market share still lags behind Tether.
Currently, the two leading stablecoin projects, USDT and USDC, hold about 85% of the market share, while other stablecoin projects share approximately 15% of the market, making competition fierce.
Revenue Verification: Authenticity of Reserve Funds
Regarding the development of stablecoin projects, Arthur Hayes warned investors that new entrants face severe challenges due to closed distribution channels, predicting that with the successful IPO of Circle, the stablecoin bubble will continue to expand but will eventually burst on a project that separates "foolish money." He emphasized that although stablecoin issuers are highly profitable (mainly from Treasury bond yields), investors should be wary of overvaluation risks, especially for projects that claim to collaborate with traditional banks but lack actual distribution channels.
As the regulatory bill for stablecoins imposes increasingly strict requirements on issuer qualifications and reserve fund audits, the threshold for stablecoin issuers may see further increases.
Limited Scenarios: Low Penetration in Everyday Use Cases
Currently, the application scenarios for stablecoins are mainly concentrated in cross-border trade, gray and black market transactions, cryptocurrency trading, and international investments, with relatively low penetration in everyday use cases. The recent closure of the U-Card service by the crypto project Infini also indirectly highlights the structural challenges in the current stablecoin payment industry—issues such as the layers of exploitation within the banking system, regulatory compliance constraints, and the inability of the business itself to generate revenue.
In the future, the mainstreaming of stablecoin payments may still heavily rely on institutional adoption and the opening and support of banking systems in major economies worldwide, including the United States.
Conclusion: The Instability Behind Stablecoins
With the launch of Paxos Labs, the “Battle of the Hundreds of Coins” is gearing up, as traditional institutions, crypto projects, and financial banks will all join the stablecoin battlefield, seeking to earn “issuance profits” and secure real monetary gains; on the other hand, they aim to “expand their business landscape” and increase their “market dream rate,” similar to listed companies like Strategy and Metaplanet that hoard coins.
However, the instability behind stablecoins still exists: such as changes in regulatory bills, hidden dangers in gray and black industries including money laundering, systemic risks in the financial system, inherent security risks of blockchain networks, and various black swan events leading to “de-pegging.” In such cases, the greatest losses will not only be borne by the issuers but also by the users of stablecoins.
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