Stablecoins are disruptive. Who will become the disruptor?

Source: Blockworks; Compiled by Wu Zhu and Golden Finance

In his book The Innovator’s Dilemma, Clayton Christensen introduced the concept of disruptive innovation—a product that initially appears to be a cheap imitation but ultimately rewrites the rules of the industry.

These products typically start in low-end or entirely new markets that existing companies overlook because they either lack profit potential or seem strategically unimportant.

But that’s a good starting point: “Disruptive technologies initially appeal to the least profitable customer segments in the market,” Christensen explains.

These customers often seek products that perform worse on traditional metrics but are cheaper, simpler, and more accessible.

Christensen cites Toyota as an example. The company began targeting budget-conscious customers ignored by the Big Three automakers in the U.S.

According to Christensen, established automakers focused on larger, faster, more feature-rich cars, creating a “vacuum” beneath them. Toyota filled this gap with the slower, smaller, less-equipped Corolla, launched in 1965 at just $2,000.

Today, Toyota is the second-largest automaker in the U.S., with its luxury Lexus LX 600 SUV starting at $115,850.

Toyota used the Corolla to penetrate the U.S. market and steadily climb the value chain, confirming Christensen’s point: the best way to reach the top is to start from the bottom.

Stablecoins might follow a similar path.

Christensen’s disruptors began in niche markets, and stablecoins started in emerging markets.

For Americans with bank deposits, stablecoins are essentially a poor man’s dollar—they’re not FDIC-insured, lack proper audits, aren’t integrated into ACH or SWIFT systems, and (despite the name) aren’t always redeemable for one dollar.

However, outside the U.S., they represent a more advanced form of the dollar—unlike a $100 bill, you don’t need to hide them, they won’t tear or stain, and you don’t have to exchange them face-to-face.

This makes dollar stablecoins popular in countries like Argentina—where it’s said that one in five Argentinians use them daily—though few Americans even know what they are.

Of course, Argentina isn’t the only place using stablecoins—DeFi traders, unbanked individuals, immigrants sending remittances home, employers paying cross-border freelancers, and savers fleeing hyperinflation all find stablecoins useful.

For these existing bank customers, stablecoins aren’t initially profitable enough to attract their business, so their early appeal isn’t about competing with bank-issued currencies.

There was a time when people craved digital dollars so much that they seemingly didn’t care whether Tether’s USDT was fully backed.

Since Circle introduced a regulated alternative to USDT, Tether itself seems to be playing by the rules, and some stablecoins now offer yields, greatly improving their standing.

But is this innovation truly disruptive?

Christensen’s research includes a six-part test to determine whether an innovation is disruptive:

Is its target customer non-consumers or those over-served by existing providers’ current products?

Yes—DeFi traders and savers in emerging markets don’t need FDIC-backed U.S. bank deposits (a full U.S. bank account would be “over-serving” them), but they do want digital dollars.

Based on historical performance, does the product underperform compared to existing offerings?

Yes—stablecoins have deviated from their $1 peg, fallen to zero (Luna/UST), faced high entry and exit costs, and can be frozen and unrecoverable.

Is the product easier to use, more convenient, or more affordable than existing options?

Yes—sending stablecoins is easier than transferring bank deposits, and for many, more convenient and sometimes cheaper.

Does the technology driving the product have the potential to push it into higher-end markets and enable continuous improvement?

Yes—blockchain technology!

Is this technology combined with a business model innovation that makes it sustainable?

Maybe—Tether might be the most profitable company per employee in history, but if U.S. regulators allow stablecoins to pay interest, issuing them might not be profitable at all.

Do existing providers have incentives to ignore or dismiss the new innovation from the start?

No. Existing providers seem alert to the threat and recognize the opportunities.

“As is often the case with low-end disruption, industry leaders tend to retreat rather than compete,” Christensen writes. “That’s why low-end disruption is such a powerful tool for creating new growth businesses: competitors don’t want to compete with you; they walk away.”

Stablecoins might be a rare exception: existing providers aren’t ignoring this low-cost innovation but are instead racing to adopt it.

In recent weeks, payment giants Visa, Mastercard, and Stripe announced new stablecoins; BlackRock’s BUIDL fund (seemingly a yield-bearing stablecoin) is rapidly attracting assets; and the CEO of a major U.S. bank said they’re likely to issue stablecoins once regulators permit.

This may be because financial executives have all read The Innovator’s Dilemma.

Or perhaps because issuing stablecoins is very easy.

Christensen defines disruptive innovation as a company-driven process—startups leveraging low-end footholds to capture mainstream markets before incumbents take them seriously.

Stablecoins might be the same: Circle’s payment network for Circle could be like Lexus to Toyota.

But Circle’s competitors aren’t as slow and dull as Toyota, so contrary to Christensen’s theory, early stablecoin innovators could be “knocked out” by the market.

Either way, the ultimate outcome might be the same: A recent Citibank report predicts that by 2030, stablecoin assets under management could reach $3.7 trillion, mainly driven by institutional adoption.