After the 2008 financial crisis, banks pulled back from middle-market lending. Private credit filled that void with pooled capital from pension funds, insurers and wealthy individuals, and lent it directly to borrowers. The private credit industry grew almost tenfold from 2007 to approximately $2.4 trillion by 2023.

The problem, though, has been that these lenders retained all of banking’s frictions. Think of the multi-day settlement windows, agent banks reconciling positions over email, and the “2 and 20” fee model that survived intact.

The new system is larger than the one it replaced, but also more susceptible to risk due to its high leverage.

The stress is already showing. In Q1 2026, redemption requests at non-traded BDCs exceeded new fundraising for the first time in the sector’s history. Blue Owl had to sell $500 million in bonds and restrict redemptions across its retail vehicles to address rising redemption activity. Blackstone’s flagship BCRED fund has already received $4.4 billion in redemption requests in the second quarter, accounting for 10% of its outstanding shares, compared with 7.9% in the preceding quarter. Capital is moving from smaller, software-heavy lenders to larger balance sheets. Ares Capital and Blackstone’s BXSL have held up. The rest are bleeding.

Blockchains can help address some of these frictions, and the world has begun to take notice.

In January this year, Apollo, the world’s largest private credit manager, put a slice of its diversified credit fund on six blockchains. The product, ACRED, settles redemptions daily. The traditional version settles quarterly, on paper, through a transfer agent.

In today’s edition, I look at how private credit’s $2.4 trillion empire is being rewired and who gets to capture the value from the new infrastructure.

Onto the story,
Prathik

What Concerns Private Credit?

After the 2008 financial crisis, regulatory guardrails were put in place to protect the banking industry from future financial shocks. The Dodd-Frank regulation in 2010, the Volcker Rule, and Basel III’s capital framework required banks to hold more capital against leveraged loans, while interagency guidance discouraged such deals.

The lending business is dominated by half a dozen key players. Apollo manages over $1 trillion in assets, with ~80% in credit. Ares has $422 billion in AUM. Blackstone’s Blackstone Private Credit Fund (BCRED) holds roughly $79 billion in assets. Blue Owl manages roughly $160 billion

Most of these institutions retained the old “2 and 20” fee structure, in which the banks charged a 2% management fee on AUM and a 20% carried interest above a predetermined profit threshold.

The mechanics behind processing a direct lending transaction are worse. The Loan Syndications and Trading Association (LSTA) targets seven business days to settle par syndicated loans and twenty for distressed loans. In reality, it often takes longer due to time-consuming paperwork.

In its market practice documentation, the International Securities Association for Institutional Trade Communication (ISITC) calls the process “highly manual (fax, email).” NAV calculations are performed quarterly by fund administrators, who are paid specifically for this.

At some levels, this system looks worse than the 2008 banking system. In 2008, the failing assets on bank balance sheets were backed by FDIC insurance. The US Fed’s emergency liquidity facilities (TAF, PDCF, TALF) plus TARP capital injections were available as the last resort. The problematic securities were still being traded, so the market priced in the stress as it unfolded.

Today’s private credit risk is entirely different.

The IMF’s October 2025 Global Financial Stability Report flagged that more than 40% of companies that borrowed from private lenders had negative cash flow from operations at the end of 2024. US life insurers are roughly 33% allocated to private credit.

This is the core problem that worries the private credit industry today. The system that replaced banks is bigger than the banks it replaced, more leveraged to insurance capital, and yet regulators have done little to change it.

Moving the Plumbing On-Chain

Lending has five layers: origination, underwriting, capital, servicing and distribution. A private credit fund collects a single fee for doing all five. Blockchains force them apart. Once they’re apart, you can see which ones still earn their fee.

Consider Maple Finance, an on-chain asset manager. Maple started five years ago as an undercollateralised institutional lender on-chain. When FTX collapsed in late 2022, so did Maple. Its largest borrowers walked away from loans they couldn’t repay. Active deposits fell by over 90% in a matter of months.

But Maple rebuilt. It brought underwriting in-house, tightened collateral and disclosure rules, and put walls between pool delegates and borrowers. By the end of 2025, it had originated over $20 billion in loans on-chain, with withdrawals settling in under five minutes.

Compare this with a 20-business-day window in the traditional market. Maple’s rise from a near-death experience shows that on-chain lending is not necessarily fragile. If on-chain lending adopts the same institutional safeguards as traditional credit, a robust model is achievable. Maple showed this by rebuilding its underwriting layer while skipping the agent bank, correspondence via fax or email, and the 20-day wait.

Securitize is experimenting at the distribution layer. Its tokenised feeder for Hamilton Lane’s Senior Credit Opportunities Fund cut the minimum investment from $2 million to $10,000. That opens up lending opportunities to a much wider range of investors. The product still requires a qualified purchaser status, but the operational cost of qualifying has been compressed.

In traditional rails, a private credit position is an inefficient, passive position on the balance sheet. The company holds it to maturity, sells it at a discount, or worse, pledges it through paperwork that could take weeks. On Aave’s Horizon, a private credit position can be used as live collateral. An institution can borrow stablecoins against it on the same day. This is because NAV updates flow through an oracle without waiting for an agent bank to apply them manually once a quarter.

There’s one caveat to all this, though. Most institutional tokenisation today is just a wrapper around traditional permissioned rails. Only two out of every 10 dollars in tokenised credit is distributed through blockchains. The remaining eight dollars is represented and recorded on-chain only for reconciliation, but is distributed using traditional lending mechanisms.

But the trend over the past 12 months indicates that the proportion is increasing rapidly. While the represented value of tokenised credit doubled in the last year, loans originating on-chain more than tripled, from $1.7 billion to $5.3 billion.

Capturing Value On-Chain

For decades, banks charged fees for ‘features’ that should have been considered as frictions. Think of the time-consuming paperwork, 20-day processing windows and the human labour involved to manoeuvre all the procedures. Blockchains promise to eliminate most of these frictions. So, where will the lending protocols earn from once blockchain commoditises the lending infrastructure?

Consider Charles Schwab, the financial services and brokerage firm. For decades, Schwab undercut every full-service brokerage in the US on trading commissions. Eventually, it charged nothing at all. Yet, Schwab didn’t get poorer. It made money elsewhere. Revenue from commissions got replaced by net interest income on idle customer cash.

BlackRock built a trillion-dollar empire on this very trade. The asset manager built Aladdin as the tech platform that unifies the investment management process. This platform became a moat for BlackRock.

In private credit, too, Apollo’s relationships, Ares’ workout expertise, and Blackstone’s deal flow remain unique to each firm. No matter what aspect of private credit tokenises, these aspects won’t. Blockchains unbundle different layers of lending. So protocols that can bundle these layers on-chain by vertically integrating across the stack can capture maximum value across the lending infrastructure.

Securitize is mimicking what transfer agents like SS&C Technologies and Apex Group did in the traditional private credit industry. They act as intermediary between the fund or lender and its investors. For decades, they have maintained investor records, processed subscriptions and redemptions, paid distributions and handled the tax paperwork. Without them, no private credit fund could operate. But that’s also why this was the largest cost centre. With Securitize, the transfer agent is turned into a smart contract.

Aave Horizon is acting like a prime broker for on-chain lending. They provide secured financing, leverage facilities, asset custody, and liquidity solutions to help funds optimise their capital structure and execute complex lending structures. Maple gives us an early peek into what an on-chain BlackRock might look like.

We are seeing similar patterns emerge with the dollar deposits. Earlier this week, I discussed how banks are reinventing to defend their deposit.

Read: Defending the Deposit

The deposit is being unbundled into yield, settlement, insurance, and convertibility, and those who can bundle those layers back again using blockchain at the lowest cost can capture maximum value from their customers.

Private credit is in the same place now. Blockchains split the single fee that used to pay for both underwriting judgment and back-office procedures into two parts. The value emerging from capturing the back-office half is what the new infrastructure will fight for.

But there is one counterargument here. One reason investors hold private credit is that it doesn’t trade frequently. Quarterly NAVs make it seem like the volatility doesn’t exist. Once blockchains make the asset liquid, volatility returns. So blockchain does not make all private credit better. It compresses the operational layer. But that’s where it offers advantages. Blockchains can affect how the asset behaves by making it less likely to default or more likely to recover.

Consider the First Brands and Tricolor bankruptcies from last September. They were cases of fraud where executives pledged the same collateral to several lenders at once. The traditional lenders overlooked the duplicate pledges. On-chain collateral records make that mechanically impossible. The IMF, the FSB, and the Fed have all flagged opacity as the central systemic risk in private credit. Transparency is the feature regulators should demand the most from private credit.

As an industry, private credit was supposed to be a better alternative to the loopholes in banking. Now, an alternative to traditional private credit is emerging in on-chain credit.

This pattern will keep repeating wherever there are inefficiencies to address and value to capture. We saw it with banks that were equivalent to deposit businesses until Merrill Lynch unbundled them and offered much more than just a savings-account-level return; exchanges were synonymous with the trading business until perpetual and event contracts forced them to become multi-asset brokerages.

The impact of blockchain infrastructure on lending extends beyond the asset class itself.

Lending is one of the oldest businesses in the world. Most of what makes it expensive is not the lender’s judgment but the friction around it, including agent banks, transfer agents, lawyers, and quarterly cycles. Once you compress these, lending gets cheaper to deliver.

Additionally, on-chain dollars can be routed to a tokenised loan book that earns the holders far more than 0.6% in a savings account. This is a big win for a retail user with dollars.

The infrastructure that rests between the underwriter and the borrower is up for grabs. Whoever expands across different layers of that infrastructure will stand to gain the most.

Securitize already owns the distribution layer, with BlackRock, Apollo and Hamilton Lane using its infrastructure. Aave Horizon operates on the composability layer. But Maple is the only on-chain native that already does credit underwriting at scale. It is also the only one of these three that owns both judgment and infrastructure. Its in-house credit team underwrites the loans, its smart contracts settle them, and its syrupUSDC product distributes the returns across DeFi pools at Aave, Pendle, Kamino and Sky. This is similar to what BlackRock does with capital, judgment and platform under one roof. Maple’s balance sheet is also the only one that has been stress-tested in the aftermath of the FTX collapse. That episode has forced Maple to build institutional discipline that others have not yet had to develop.

That’s it for today. I will be back with the next one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Markets continuously evolve. It’s what they do. They eventually outgrow the product they were initially built for. What started as a Chicago butter-and-egg exchange in 1898 became the world’s largest derivatives market (CME). Amazon started by building warehouses and payment rails to ship paperbacks. Today, the same systems don’t care what they ship. Books are probably a footnote in Amazon’s revenue now.

This pattern stays relevant today. You start by building infrastructure for one thing, discover that it works for many other things, and then you keep expanding your business to absorb everything your infrastructure can support.

Crypto exchanges are living this moment.

The infrastructure they built to trade tokens works just as well for trading crude oil, silver, equity indices, pre-IPO stocks or event contracts. Non-crypto perpetual contracts accounted for 99% of all trading volume over the past seven months on a permissionless market that didn’t exist two years ago.

You can see this market playbook happening everywhere. Every exchange is racing to become a multi-asset brokerage, and blockchain rails are providing the cheapest path to get there.

Onto the story,
Prathik

The Cheapest Path

A perpetual futures contract or a prediction market contract doesn’t care whether the underlying is bitcoin or crude oil. All you need is a stablecoin-funded wallet to buy a futures contract on a memecoin or place a bet on the outcome of Apple’s quarterly earnings. The rails are asset-agnostic. Just as the internet and logistics networks were agnostic to what was traded on Amazon’s marketplace.

But why would traders abandon their current venues to trade silver and stocks on an exchange that has barely existed for a couple of years? The same things that drove people to choose online commerce: convenience and cost savings.

Amazon cut the intermediaries and allowed distant sellers to ship directly to buyers. This enabled the sellers to undercut their competitors by offering subsidised prices. It also allowed buyers to browse a host of options, add items to their shopping carts, and make payments from the comfort of their homes (or anywhere else).

Although the cost advantage that blockchains offer was originally built for crypto transactions, it applies equally to equities settlement, commodity clearing and cross-border stock access.

The 24/7 live markets on the blockchain also allow traders around the globe to price events at any time. We saw their impact on non-crypto assets multiple times in the past few months.

Since October 2025, Hyperliquid’s permissionless markets (HIP-3) have processed ~$270 billion across seven builder-deployed venues. Of this, 99% of trading came from commodities, equities, FX, equity indices, and pre-IPO contracts. Crypto stayed below 1% throughout. And the asset mix continues to diversify each month.

When the US-Israel conflict with Iran escalated over the last weekend of February this year, the world’s largest commodity exchange (CME) was closed. Hyperliquid’s WTI perpetual wasn’t. Trading volume on the platform surged from $25 million to over $550 million in three weekends. Hyperliquid had priced in roughly 80% of the subsequent WTI crude move before CME reopened on Monday, according to a recent report by TD Securities.

Even the perpetual contracts on silver hit nearly $1 billion in daily volume during the precious metals rally earlier this year. Trading on blockchain-enabled venues continued even when traditional markets were shut.

This isn’t limited to perps. The same behaviour is seen in equities trading.

US equities represent more than 60% of global equity market capitalisation. For most of the world’s investors, buying them requires intermediaries, foreign exchange conversion, minimum balances, and restricted account types.

Everyone wants a taste of the world’s largest economy and a place in its growth story. This explains why almost every crypto exchange wants to let its traders buy and sell U.S. equities or derivatives with U.S. equities as the underlying.

On June 1, Binance announced zero-commission access to 7,000 U.S.-listed shares and fractional ownership starting at $5 for all its 300 million registered users. The vast majority of them are outside the U.S. and can now gain exposure to U.S. equities using their stablecoin-funded wallets.

Kraken’s xStocks has already shown how tokenisation can impact access to public equities. The platform has tokenised over 100 public equities, generating $25 billion in trading volume with 80,000 on-chain holders.

Blockchains also unlock pre-IPO price discovery for traditional markets. SpaceX is preparing what could be the largest IPO in history by raising roughly $75 billion. On June 1, Anthropic confidentially filed its IPO papers. OpenAI is likely to follow. Before these companies go public, price discovery is opaque and restricted to accredited investors.

In Pricing the Private, I explained how the market is interested in pricing assets that behave like public companies.

Companies like OpenAI and Anthropic have brand recognition, revenue at scale, and hundreds of millions of users. They have everything a public company has except public shareholders. Their marketing has ensured that everyone has an opinion about them. In fact, there has never been a wider gap between everyone having an opinion on SpaceX, and yet almost nobody being able to price it.

Blockchain enables multiple tools to let the market price these private companies.

For instance, many platforms that started as crypto exchanges now offer pre-IPO perpetuals, prediction-market contracts, and tokenised IPO access for companies that have yet to go public.

Multiple market makers have offered perpetual contracts on Hyperliquid for companies such as SpaceX, Cerebras, and Anthropic. The trading volume on these contracts has jumped about 300 times over the last six months, from $16 million to $4.7 billion. The perp contracts on pre-IPO stocks accounted for 7.7% of all HIP-3 activity in May, up from 0.2% in December 2025.

These venues are not just always on and cheaper, they also provide deep liquidity traders can trust.

During the Iran escalation, Hyperliquid’s WTI contract handled hundreds of millions in daily volume at tight spreads. Between January and April 2026, the open interest in a WTI Oil perp contract rose from $1.8 million to $560 million.

Traditional exchanges can also offer users cross-margin and deep liquidity by tapping into their user deposits. Binance offers its users access to pre-IPO stocks through its integration with PreStocks, while Payward (Kraken’s parent firm) allows its users to invest in tokenised IPO.

Less than 24 hours ago, Coinbase also joined Kraken and Binance by launching perp contracts on pre-IPO stocks, starting with SpaceX.

Building a Full-Stack Fintech

The convergence of traditional finance and crypto from both directions is creating a full-stack fintech platform for many of these companies. While crypto-native platforms are adding traditional asset classes, traditional exchanges are rapidly adopting blockchain infrastructure.

On the crypto side, Kraken spent over $2.7 billion on acquisitions in the past 12 months to turn into a multi-asset brokerage. In March 2025, it bought NinjaTrader for $1.5 billion — the largest deal ever to secure a CFTC-registered futures commission merchant.

It followed that up by acquiring Backed Finance to control xStocks issuance, trading and settlement in-house. Its product grew from 60 tokenised equities to 100 by early 2026. Five more acquisitions followed across payments, clearing and automated trading infrastructure.

It then launched Krak, a payments app supporting 300+ assets across 160 countries, that helps users spend, send and earn yield on their crypto.

Coinbase has lined up a similar stack.

At its December 2025 product event, Coinbase launched commission-free stock trading across all 50 states and prediction markets via Kalshi.

In August 2025, it acquired Deribit for $2.9 billion, giving it control of the largest crypto options market. Coinbase is now positioning USDC and its Layer-2 chain Base as settlement rails for everything from agentic payments to equity trades.

Each of these platforms entered finance through crypto and now boasts a distribution network that incumbents spent decades building. Binance has 300 million registered users. Kraken serves 15 million clients across 190 countries. These user bases are their biggest moats as they expand into multi-asset brokerages.

When Binance adds 7,000 US stocks, it doesn’t have to build demand from scratch. Access to these equities and pre-IPO stocks is being offered to people who have already topped up their wallets with stablecoins multiple times and have verified identities. The marginal cost of adding equities to an existing crypto brokerage is a fraction of what a traditional broker spends to acquire a single new customer.

The traditional incumbents are also adapting aggressively to stay relevant.

The same day Binance launched US stocks, the CME Group, the world’s largest derivatives exchange, announced 24/7 trading for all its crypto futures and options.

DTCC, which custodies $114 trillion in assets, will pilot tokenised securities this July and move to full production in October. The pilot covers Russell 1000 stocks, major index ETFs, and US Treasuries. More than 50 firms joined the effort, including BlackRock, JPMorgan and Circle.

NYSE partnered with Securitize to build a 24/7 tokenised stock venue. Nasdaq received SEC approval in March to trade tokenised equities within its existing rails.

It’s an interesting convergence. CME and other legacy institutions are adopting 24/7 operations because crypto has shown markets don’t need to close. Crypto exchanges are adopting traditional assets — oil, silver, indices — because users have shown that demand will shift to any platform that offers deep liquidity and a cheaper way to price information.

Blockchains are serving as a common bridge between the two.

Crypto’s Evolution as Fintech

As with any technology, online forums have defaulted to binaries about crypto’s use case. They expect crypto to either build a new, separate financial world or crumble under its own weight. But crypto is evolving in the area in between. The same happened with the internet.

While people were busy either writing it off or celebrating it as a new world, the internet, over time, became commoditised to the point where it is now invisible. Pretty much the entire world runs on it. Nobody argues anymore about the internet’s use case. It has become the common denominator enabling newer technologies on top of it.

This is exactly what I see unfolding for crypto. The technologies that come with crypto may not be achieving what the founding cypherpunks expected. I doubt most of them would even care; at least I don’t.

While the endogenous markets are busy debating BTC cycles and downturn narratives, a parallel exogenous side to the market is steadily expanding across multiple layers of the finance stack. Payment infrastructure, agentic commerce, integrated price discovery platforms, and now multi-asset brokerages. These businesses are thriving independent of whether BTC is at $60,000 or $100,000.

Hepworth Iron Capital’s Charlie Booth explains the endogenous-exogenous market evolution beautifully in his guest op-ed on Token Dispatch last week.

What interests me the most here is that a technology built to trade tokens is being used to give a retail investor $5 worth of access to Apple stock on a Saturday, settled in stablecoins with sub-cent fees, on infrastructure originally built for memecoins.

These possibilities happen only when the new infrastructure is significantly better than what it replaced. We all know old habits die hard. And the world is discovering blockchains as the magic pill to make finance work better. In some cases, by lubricating the legacy financial systems; in others, by altogether replacing the old, dilapidated systems. There is no wisdom in resisting change for the sake of it.

It’d also be suicidal for any industry run by humans to resist change that improves how existing systems work. That’s because of humans’ innate desire to improve inefficient systems. Things that make inefficient systems efficient are always adopted. No matter how new and how radical they might seem. Blockchains have evolved in a space with plenty of room to reduce such inefficiencies. The fact that legacy institutions and markets like Nasdaq, NYSE, and CME are adopting blockchain technology is a testament to blockchain’s evolving role in the future of finance.

Every exchange is a brokerage now (or will soon become one). Not all would have planned it, but that’s what they want to become. But what unfolds next? Who wins when every platform offers stocks, derivatives, prediction markets and crypto on the same app? It will come down to how well they integrate these assets across their platforms and enable their users to carry out some of the most fundamental tasks in the world of finance: spending, sending, receiving, and earning money.

That’s it for today. I will be back with the next one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

In March this year, OpenAI shut down a feature that let AI agents shop on your behalf. Barely 30 Shopify merchants used the feature in five months since its launch. There was nothing wrong with the payments infrastructure. The problem was that there were no rules in place to ensure a seamless shopping experience. What the agent could buy, who collected sales tax, how fraud was caught, who handled returns — none of it was settled.

Giving an agent a wallet or building payment infrastructure has been easy to crack. But allowing individuals or businesses a trusted and governed way to use an agent to spend their money is tricky. Only programmability and rules can ensure a trusted environment. This gap in the governance layer has become an opportunity in the agentic economy.

Last year, AI agents settled $73 million across 176 million transactions. The number might seem insignificant now, McKinsey projects that AI agents will mediate $3-5 trillion in global consumer commerce by 2030.

Companies building this economy are racing to own the governance layer, including spending controls, identity checks, and policy enforcement that determine which agents are trusted with budgets.

Today, we map out who is building the banking layer for the bots and what’s in it for those who dominate it.

Onto the story,
Prathik

Why Own Multiple Layers

The economics of processing agent payments are brutal. The average payment made by AI agents over the last 12 months was 31 cents.

Consider what a 31-cent payment would leave behind for those orchestrating the transaction across several layers in the background. Stripe’s standard pricing of 2.9% plus 30 cents in fixed fees leaves the merchant with less than a tenth of a cent. Visa interchange swallows a third of it. On the other hand, Layer-2 stablecoin rails process the same transaction for $0.0001.

These economics established the case for crypto’s use across the settlement layer.

The payment infrastructure across the settlement layer is largely solved. Coinbase’s x402 protocol processed the vast majority of last year’s 176 million transactions, with around 3,900 merchants now accepting agent payments. Stripe and Tempo co-authored a competing protocol, Machine Payments Protocol (MPP), that launched in March with over 100 integrated services. Google, Visa and Mastercard all shipped agent payment products in the same window. That’s five competing payment architectures in 12 months.

But the problem with agentic payments is that nobody will get rich by processing 31-cent payments. So, the value concentrates in the float and in enforcing the rules around how agents make the payments.

Last week, we explained how businesses could capture value by owning the wallet layer that holds the stablecoin balances for AI agents. But the float is only one of many such value layers worth capturing. The other is the rules governing how that float gets spent.

These rules include spending controls, agent identity, policy enforcement, audit trails, and liability allocation when transactions fail. This layer is wide open.

In April, American Express launched Agent Purchase Protection, an insurance product that covers erroneous purchases made by AI agents. This is an implied admission of the state of the governance layer across AI agents. There’s value to be captured here by addressing the missing governance in an industry expected to grow to $3-5 trillion in less than five years.

This is why the incumbents are now racing to capture the governance layer.

But at what level should this layer be built? It can be a bank, a developer API or even a wallet.

Wallet as the Governance Layer

Every dollar that an agent spends passes through the wallet. This makes it the best point to enforce spending limits, identity checks and human approvals. Once you control the wallet, you control the governance. Stripe, the payments infrastructure company, learned this early on.

In June 2025, Stripe acquired Privy, a company that built embedded wallets for consumer crypto apps. Through the acquisition, Stripe inherited 75 million wallets across 1,000+ developer teams. These wallets now sit at the very chokepoint where every policy, spending limit, and human approval can be enforced before any money moves.

Stripe has also assembled an entire agentic payments stack. It acquired Bridge to handle stablecoin orchestration and fiat conversion. It also partnered with Paradigm to incubate Tempo, a payments-focused Layer 1 blockchain. Stripe and Tempo co-authored the Machine Payments Protocol (MPP), an open standard for how agents request, authorise and settle payments.

Read: Why Stripe built its own chain

Stripe’s agent-ready financial stack now lets software check balances, pay invoices, store funds, create virtual cards and send money. An agent can execute routine payments on its own, but escalates anything outside its policy parameters for human review. Treasury balances are backed by noncustodial Privy wallets across more than 150 markets.

Even when Amazon had to allow its developers to give AI agents the ability to spend money, it chose two wallet companies - Privy and Coinbase. Not seasoned financial players like banks or card networks, but a wallet provider that is barely five years old.

This is because the wallet serves as the ideal checkpoint, allowing the right level of human intervention to ensure the necessary checks and balances.

In its report ‘Who Pays the Agent’, Keyrock argued the agentic commerce market will “settle in the middle, where agents operate with significant autonomy but within cryptographically enforced boundaries that humans can audit and revoke.”

Read Keyrock's Report

This is the position Privy occupies inside Stripe’s stack. The wallet enforces the boundaries within which the agent has to operate.

Here’s how the governance strategies on this stack function.

Privy offers two models for agentic wallets. In the first, the agent controls the wallet entirely and executes transactions within policy constraints without requiring human approval. This model works best for fully autonomous agents like trading bots and portfolio managers. In the second, users retain ownership of the wallet but grant the agent restricted permissions to operate as a signer. Users can revoke access at any time.

Stripe’s MPP follows a similar governance strategy.

MPP introduced a feature called sessions for high-frequency agent tasks. Under sessions, an agent pre-authorises a spending budget and then streams payments within that limit continuously without needing a separate request for each individual on-chain transaction. The MPP has implemented sub-cent billing for LLM inference and per-query pricing for data APIs.

This is the governance granularity that card networks cannot support.

Vertically Expanding the Stack

Although Coinbase’s x402 leads AI agentic payments today, Privy has an advantage that has little to do with crypto. It’s the distribution moat via Stripe.

Coinbase has 3,900 merchants that accept agentic payments. For every Coinbase merchant accepting agent payments, Stripe has roughly a thousand. In February, Privy said that if every Stripe merchant chose to accept machine payments, agentic commerce could scale through Privy wallets today. Stripe merchants don’t need to build bespoke crypto infrastructure.

While the race between Stripe and Coinbase is tightening, other traditional giants are also joining the race to expand vertically across the stack.

Keyrock mapped 179 projects across six layers of the agent payments stack: settlement, wallets, routing, protocols, governance and applications.

Coinbase and Stripe each span five of those six layers. Circle covers four. Despite their scale, Google covers two layers and Visa just one.

The incumbents spent over $8 billion in twelve months filling gaps in their stacks. Capital One acquired Brex, an AI-native software platform, for $5.15 billion. Mastercard acquired BVNK for $1.8 billion. Among these, the wallet layer and the AI software layer attracted the most aggressive acquisition activity. Stripe bought Privy, Fireblocks bought Dynamic, and Arbitrum bought ZeroDev. In each case, payment infrastructure bought a standalone wallet provider.

These deals collectively suggest that the market has picked a scarce layer. Settlement has become cheap and interchangeable, but programming permissions, budgets, and liability are where the value lies.

Vertically integrating across multiple layers also has a compounding effect.

Whoever owns this checkpoint can set the rules for spending, capture the float before it moves, decide which merchants, agents, and applications get trusted access and earn a fee to enable all these things. We saw it with the Privy-Stripe distribution moat.

Even Coinbase’s position shows how this works. Every x402 payment creates USDC demand on Base, its Layer 2. That generates revenue on float. That revenue funds more agent tooling through AgentKit, which ships with session caps, per-transaction limits, and allowlists that restrict transfers to vetted contracts. More agents on AgentKit means more x402 payments. Every layer feeds into the other.

There’s a lot more investment activity by the incumbents.

Coinbase Ventures has also invested in Catena Labs, Skyfire and Payman, the three most prominent standalone governance startups. Circle’s cofounder Sean Neville founded Catena, and Circle invested in Skyfire. a16z led rounds for both. Visa backed Payman and partnered with Skyfire.

The same names that built the payment settlement infrastructure are funding the governance layer. The idea is that if governance remains a feature within the existing infrastructure, as Privy has built it with its two models, then incumbents can maximise their revenues. If governance becomes a standalone layer, they win through their portfolios.

What’s in Owning the Governance Layer?

Processing payments has never been the most valuable position because, at some point, financial rails commoditise. Once that happens, the margin shifts toward the layers that decide whether a transaction is allowed to happen and under what conditions.

Historically, many industries have gone through the same commoditisation.

Consider what happened when the internet commoditised cable. All internet service providers (ISPs) became indistinguishable and interchangeable. So the telecoms had to expand vertically to stay competitive.

India’s top telecom networks - Jio and Airtel - started bundling hundreds of TV channels, subscriptions to half a dozen OTT platforms, unlimited voice calling, a set-top box and a free router into a single broadband plan. Similarly, AT&T acquired Time Warner for $85 billion to become an integrated media and telecom giant. The idea was to combine Time Warner’s premium content, like HBO, Warner Bros., and CNN, with AT&T’s massive distribution network to compete with streaming platforms like Netflix and Amazon.

When broadband connection - the underlying infrastructure - became the least valuable part of the package, the value shifted to the content, the relationship and the bundle of offers that best attracted customers.

We saw this play out in crypto, too.

Settlement was supposed to be at the protocol level. Think of Ethereum as the shared ledger everyone settles on. When Coinbase launched Base as a faster, less congested Layer-2 chain, the company began earning money from gas fees on every transaction it settled on its own chain. Coinbase now earns roughly $60 million in annualised sequencer revenue by processing transactions on Base.

The players building agent payment rails have learned from watching this.

In The Agentic Float, we explained how an economy can emerge by controlling the stablecoin balances agents hold between transactions. This allows the companies that capture the wallet layer in the stack to add a revenue stream.

The governance layer adds another revenue stream, and possibly a larger one.

Visa earned 0.28% on $14.2 trillion of its annual payment volume. That take rate not only includes a processing fee but also an implicit governance fee for the trust the payments company has built by preventing fraud, resolving disputes, and enforcing network rules.

Applying even a fraction of that take rate to agentic commerce, it tells us the magnitude of value it adds to the companies building on the governance layer. At McKinsey’s projection of $3 trillion in agentic commerce by 2030, a governance take rate of just 0.1% (about 35% of what Visa charges) would generate $3 billion a year. For context, Coinbase’s entire subscription and services revenue stood at ~$2.8 billion in 2025. The revenue from the governance layer on agent transactions alone could rival what Coinbase currently earns from staking, custody, and Coinbase One combined.

A company that has a presence across the wallet, settlement and governance layers of the agentic finance stack can earn yield on idle agent balances (revenue on float), fees from settlement (sequencer revenue on every transaction), and compliance fees (from enforcing the governance).

This is why vertical integration across the stack will be the only business model that lets a company remain competitive in the agentic era.

That’s it for today. I will be back with the next one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

New technologies rarely come as clean replacements. They usually attach themselves to the infrastructure people already trust. That’s where teething troubles often emerge.

Cards did not eliminate cash overnight. Neither did mobile payments. Now, stablecoins are learning the same lesson.

One of the hardest parts of transitioning from older to newer rails for moving money is making that technology usable within the systems where people already live, shop, travel, and get paid. That’s where the value leaks, but it’s also where great businesses find opportunity.

At a pharmacy in Buenos Aires, a customer can hold USDT or USDC in a wallet, but the cashier still wants a card that can move those stablecoins and make a payment. The merchant doesn’t care about Tron, Base, gas fees or settlement finality.

Stablecoins only solved part of the problem by giving people access to hold dollars. Crypto cards help move digital dollars between the holder and the merchant. But when all cards offer similar rewards and move money between the same players, the differentiation lies in owning the deeper payment stack behind every swipe.

In today’s analysis, I will explain why crypto cards must vertically integrate across the payment stack.

Onto the story,
Prathik

The Anatomy of a Swipe

A card swipe is one of my favourite things about finance. It looks so simple yet conceals a dozen actors orchestrating a complex chain of tasks. On the face of it, you just tap or swipe the card, the terminal approves, and the merchant hands you the receipt. But underneath it is a stack that includes an issuing partner, a processing gateway, a card network, a compliance partner, and a fraud monitoring body. The process also has to maintain custody of funds and process the FX when the user’s balance and the merchant’s currency differ.

When stablecoins enter the picture, you must address additional questions: Who holds the stablecoins, who converts them, who manages the routing, and who covers the volatility and settlement risk?

A crypto card solves the user’s problem at the surface. If you have USDT or USDC in a wallet, the card lets you spend it without forcing the merchant to touch crypto.

But as a business, the card is the least interesting part. In a world where everyone is offering cards to spend your crypto with similar rewards stacked on top, the only differentiation is owning enough of the stack so that every transaction creates value in more than one place.

Every layer of the payment stack charges the merchant a fee to pass the money along to the next layer. The best way to optimise such a stack is for a player to vertically integrate multiple layers and undercut other players by charging the user a substantially lower fee for moving the money.

Saurabh explains how this works for cross-border payments in his Stripe piece for Decentralised.co.

Crypto cards sit at a similar intersection.

A report by Memento Research notes that most cards today have similar propositions, usually built around prepaid balances, cashback or points. The moat in this environment is no longer the card itself.

Read report here

How do you differentiate in such an industry? By operating across different layers of the stack underneath. One card may own more of the API orchestration, settlement logic and compliance stack. Another may mainly own the consumer relationship. How deep each one goes determines how much it earns.

Consider a crypto-native case of Rain cards. Rain powers stablecoin cards and global money movement for platforms, fintechs, and institutions. It makes tokenised money like stablecoin usable in the real world through cards, wallets and everyday payments.

The Rain Case: Depth as Moat

Rain is a Visa Principal Member, which is the regulatory wedge that lets it issue cards or card programmes directly on Visa rails rather than renting infrastructure from an issuing bank.

When it offers a crypto card to its users, it also provides backend infrastructure spanning APIs, compliance layers, and settlement logic. This allows fintechs and wallets to launch stablecoin-linked card programmes.

Rain cannot afford to focus solely on winning customers who can tap their cards at stores. In that case, it will be competing with half a dozen other card providers trying to do the same thing. Instead, it is branding itself as a product that coordinates accounts, cards and global money movement through a unified API. Rain’s status as a Visa Principal Member allows it to help its partner wallets launch card programmes in just six weeks. Without a platform like Rain, a wallet would have to separately coordinate for months with an issuing bank, a processor, a compliance vendor, a settlement partner and local payment providers. Rain compresses all these into one single infrastructure layer.

Joel’s piece on vertical integration is useful here. In this, he argues how durable crypto businesses are those that control the supply side, demand side and distribution together. A similar argument can also be applied for cards in payments.

Here, the user’s stablecoin balance is the supply, the desire to spend it is the demand and wallet or fintech integrations form the distribution. Rain shows how owning the layers across these three layers helps in standing out.

The numbers in Memento’s report validate the vertical integration thesis for cards.

It shows that Rain-based cards consistently led in deposit volumes because Rain offered the underlying infrastructure for multiple card programmes, including EtherFi Cash, KAST, Offramp, and the Avalanche Card. From the second half of 2025, a wave of new card programmes launched with Rain as their core infrastructure partner, helping Rain-based cards gain deposit-share leadership.

Building across multiple layers of the stack also gives a distribution advantage.

A normal card brand has to acquire customers one by one through ads, referrals, rewards or community campaigns. Rain can acquire them in batches by becoming the card infrastructure inside wallets and fintech apps that already have users. If EtherFi Cash, KAST, Offramp and Avalanche Card all run on Rain, each partner brings its own community and distribution, while Rain sits underneath the transaction flow.

The front-end brand may still belong to the wallet, but the programme operations, compliance, settlement and orchestration sit deeper in Rain’s stack. So the pharmacy in Buenos Aires may never know that the Avalanche card being used at the counter is powered by Rain. The user may not know either. But Rain still benefits because the swipe runs through infrastructure it helped build.

This is why comparing crypto card brands at face value is misleading.

A RedotPay card and a Rain-powered card may both let a user spend stablecoins at a merchant terminal. But from a business-model perspective, the value they capture depends on how many layers in the stack they operate on.

Better Risk Control and Higher Ceiling

The more of the underlying stack a card company owns, the more it can shape the user experience and the economics. If the business is only a front-end, it is fragile and vulnerable to changes made underneath.

It could lead to the problem of over-dependency and create a single point of failure.

A crypto card brand can promise cashback, points, metal-card aesthetics and instant spending. But if the issuing partner changes its risk rules, the card can stop onboarding users. If a processor tightens merchant category restrictions, some payments may fail. If a banking partner pulls out, off-ramp availability can shrink. If a card network changes compliance requirements, the business has to adjust overnight.

The user experiences the most disruption. Uncertainty around the terms of using the card can lead to frustration, which in turn leads to a customer-support nightmare. The rented infrastructure comes back to bite the card providers.

Memento’s report also notes that most card programmes sit on top of issuers, processors and a few crypto card-as-a-service providers. This could leave the card providers at the mercy of others who own various layers across the stack. We have seen this happen before.

In October 2023, Binance ceased its debit card services in the European Economic Area (EEA) after Paysafe, its banking partner in the region, ended offering its embedded wallet solution to the crypto exchange.

It also acts as an economic ceiling.

If a crypto card company rents issuing, processing, compliance, FX and settlement, then its room to monetise is limited to what remains after all those partners take their cut. It may still grow fast, but its ceiling is capped at the number of customers it can sell its cards to. This doesn’t give it control over the most important cost lines in the transaction.

The more fragmented the stack, the harder it becomes to offer lower fees, better rewards or more reliable settlement without going underwater on every transaction.

Vertical integration changes that equation.

A company that owns more of the stack can decide where to undercut its competitors with compressed fees. A vertically integrated brand can subsidise the front-end card because it earns from settlement and orchestration layers on the back-end. It can offer better rewards because it captures economics across multiple layers. The multi-layer presence even allows the company to move faster into new markets because it is not busy stitching together the compliance, issuer and processor stack in each new country across different geographies.

When half a dozen other card providers offer cashback and rewards to acquire customers, Rain can subsidise deeper and make money by coordinating the movement of stablecoins from wallets to merchants across compliance, orchestration and settlement layers.

This is the journey I see more crypto cards heading toward.

Card providers can still choose to continue building branded card programmes to acquire more users. Some might even build successful businesses by packing an attractive reward structure with intuitive design and token incentives. But their margins will still depend heavily on the infrastructure providers that they will have little control over.

On the other hand, there will be card companies that serve as the infrastructure underneath. These brands might still be less visible to the end users, but more important to the market. When five wallets launch cards on top of the same provider and compete for the same consumer, the infrastructure provider will be sitting cross-legged in the background, earning from all of them, irrespective of who wins the race.

This is how any industry matures. Swiping a card will remain the simplest activity in finance, and so the least profitable. The value for capturing will be in running the stack that coordinates the complex web of tasks underneath the swipe or tap of the card.

That’s it for today. I will be back with the next one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

By 2015, European banks had been online for nearly two decades. You could check your balance, transfer money, and pay bills, all from your phone. Although the infrastructure worked, every financial service still had to run through the bank as a gatekeeper. Nothing else could plug into your money without the bank’s permission.

Then PSD2 forced banks to open their plumbing via APIs. Stripe built its European Treasury on open banking, Plaid connected hundreds of millions of accounts, and Shopify started underwriting loans using transaction data. By 2030, embedded finance is expected to exceed €100 billion in annual revenue across Europe alone.

But for the industry to arrive there, it had to pass through 15 years of online banking, which had already taught hundreds of millions of people that digital financial infrastructure was reliable. The API layer didn’t conjure trust from nothing. It was built on the trust that had accumulated over the years.

This is the story of how trust evolves around any new technology. Tokenisation is living through the same moment right now.

Last week, Pantera Capital published a report on the state of tokenisation in 2026.

In this report, they scored 542 out of the 593 live tokenised assets across three dimensions of on-chain maturity — issuance and redemption, transferability and settlement, composability — and arrived at an average Tokenisation Progress Index (TPI) of 2.04 out of 5. About 77% of tokenised assets are still digital receipts of the original assets off-chain. In these cases, the off-chain ledger remains authoritative, and the token adds just a data layer on top of it.

Read the Report

It’s tempting to read these scores as a poor grade. Crypto natives might call it a stalled industry. But no technology can build sustained, mass adoption by skipping the trust-building phase. Here is why.

Onto the story,
Prathik

Wrapper: The First Stop

The Pantera report found that 460 out of 593 (77%) tracked assets fell into the ‘Wrapper’ bucket, while only 16 were natively launched, managed, and recorded on-chain. Tokenised wrappers are assets whose minting and redemption still occur off-chain through a centralised issuer. About 66 fell into the hybrid category.

Pantera calls the current state the “newspaper-on-a-website phase.” The phase isn’t a failure of the industry to mature quickly. It’s the first stop that tests the thesis that on-chain representations of existing traditional assets can offer any benefits.

Let’s rewind two decades. Imagine reading about online commerce for the first time. You scroll, you click, and a stranger ships you a box. The thought felt magical back then. You’d order once to experience what it feels like, perhaps. But you would pay before the box arrived?

The early e-commerce era was heavy on cash-on-delivery because customers were slowly warming up to the idea of buying something without first touching and feeling it. Users preferred to pay on delivery because it let them cross the first hurdle of believing that something like e-commerce was even possible. Technology to facilitate online transactions wasn’t the problem. SWIFT-enabled interbank transfers have been around since the early 1970s, and consumer payments became possible via platforms like CyberCash and PayPal in the 1990s and early 2000s.

Yet, the switch to paying online came much later.

Similarly, the first drive toward tokenisation is setting the stage for what comes next: programmable compliance, autonomous collateral management and real-time yield optimisation. Then follow the financial building blocks that separate ownership, cash flow, and risk, and recompose them.

A tokenised version of an off-chain asset shows that the new tech can do faster settlement, cheaper transfers and cleaner ledgers of record. Each time a tokenised Treasury or money market fund settles faster than its off-chain equivalent, it builds confidence among its customers.

The data in the report also backs this idea.

Of Pantera’s three Tokenisation Progress Index (TPI) criteria, the one that measures transferability and settlement scores the highest at 2.29. The fact that 205 assets have reached a score of 3 on this dimension indicates that the industry is leaning toward using blockchains as the authoritative management and settlement layer. By contrast, the TPI of the issuance and redemption layer lags at 1.82. Over 91% of assets still rely on admin-gated minting and custodian-mediated exits.

These scores indicate that the market is more comfortable with reliably moving assets on-chain before it can trust the chain to autonomously originate and redeem assets.

This maturity curve is inevitable for any technology. That’s because even the greatest technology cannot magically generate demand for that asset.

Demand is for the Asset, Not the Rails

Introducing a native on-chain asset will not automatically attract capital. The data from the report reinforces this idea.

Stablecoins account for 91.6% of the $320 billion tokenised market. US Treasuries add another $12 billion. Together, that’s roughly 95% of the total. Everything else, including private equity, real estate, and corporate bonds, accounts for a negligible 5% today.

This shows that the market isn’t following the most interesting native tokenised asset. The demand follows for those assets that people have wanted to invest in all along. People don’t care whether something comes in a wrapper or a native on-chain treasury fund. As long as the new infrastructure offers them an incrementally better experience of holding, transferring, and recording the asset, they will prefer it to the old infrastructure.

We have seen this across multiple primitives in the crypto ecosystem.

Hyperliquid’s HIP-3, launched in late 2025, enabled permissionless perpetual futures markets for real-world assets, including equities, commodities, indices, and FX. These markets have recorded over $240 billion in trading volume since launch. In January 2026, Hyperliquid’s HIP-3 perps market on Silver captured 2% of the global trading volume for the metal in just one month of its launch.

Read: A Sliver of TradFi

All this demand didn’t materialise because Hyperliquid invented a new format. The traders who chose Hyperliquid already wanted exposure to Tesla, silver, gold, and the S&P 500. The format that Hyperliquid offered, which is a 24/7, permissionless, non-custodial venue, simply minimised the friction and time between an event happening and a trader expressing a view on it. The underlying assets were popular even outside Hyperliquid. The technology succeeded because the platform amplified access.

The same dynamic is playing out inside tokenisation.

At 64%, Private Credit accounts for the highest share of its supply actively deployed in DeFi protocols. That’s far more than Stablecoins at 9% and Treasuries at 3.2%. The demand isn’t specifically for “tokenised” private credit.

People who deploy their funds into DeFi protocols via tokenised private credit do so because these wrappers offer them yield denominated in stablecoins. The underlying appetite remains for non-crypto yield. They don’t care whether the underlying rail is merely a wrapper for an existing private credit product or a native on-chain one.

Even the surge in commodities reinforces this idea.

Native on-chain products around tokenised commodities have grown fivefold from $1 billion in January 2025 to $5 billion today. That’s not because these rails offered something different. The jump tracks gold’s 65% rally in 2025, its sharpest annual gain since 1979. Tokenised gold products gained value largely because gold gained value. The blockchain just facilitated better settlement, transfer, and ownership of the asset.

If the underlying asset is compelling, tokenisation can make it more accessible, cheaper to settle, and easier to move. If the underlying isn’t that exciting, no amount of on-chain composability can fix that.

Where does that leave the industry?

The Pre-API Moment

I find striking parallels between the PSD2 moment and the journey of tokenisation.

Europe’s regulatory breakthrough, passed in 2015, took effect in 2018, and produced scaled native products like Stripe Financial Connections and embedded lending by 2020–2023. It took roughly five to eight years for native products to thrive on the underlying open infrastructure.

Tokenisation’s regulatory breakthrough moment began to take shape in 2024, and it’s arriving in parts across jurisdictions. MiCA took full effect in December 2024, with 102 crypto-asset service providers authorised across Europe by year-end 2025. The GENIUS Act was signed in July 2025, the first federal US legislation for digital assets. A couple of weeks later, the SEC launched Project Crypto, with Chairman Atkins acknowledging that firms from Wall Street to Silicon Valley were lining up to tokenise.

If the embedded finance timeline holds, we should expect native on-chain products to emerge in the next 3-4 years. They may not be everywhere and for every asset class. But in the pockets where the wrapper phase has already built enough trust and where the underlying demand already exists, we will see the change coming sooner than later.

Private credit is the clearest candidate. Two out of every three dollars of on-chain private credit are already active in DeFi. The composability that makes private credit products like Maple’s syrupUSDC useful in DeFi was built on top of a lending infrastructure that first had to prove it could reliably underwrite, disburse, and collect on-chain. The native features will arrive as extensions of trust already earned.

The $320 billion tokenisation market scored 2.04 out of 5. That still reads like a poor grade. But that’s where a new industry starts to build trust and position itself to grow through faster settlements, cheaper bookkeeping, and more transparent ledgers, until the demand for native on-chain assets catches up.

That’s it for today. I will be back with the next one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

The company earned billions in revenue from interest on Treasury reserves it held as collateral backing its stablecoins and paid other platforms to distribute and settle USDC across the payment stack. For every dollar Circle earned, it paid roughly 60 cents to the partners who moved the USDC around. It could afford to part with that money as long as the margin it retained was significant. But with the low-interest regime underway, the USDC-issuer was leaving too many cents on the table. For most of its life, Circle owned one product: USDC.

In its recent Q1 2026 earnings release, the USDC-issuer announced multiple moves to capture value across the stack it operates in. A $222-million presale for its native Layer-1 token, ARC, at a $3 billion fully diluted valuation; the launch of AI agentic infrastructure; and the expansion of its Circle Payments Network to enable banks to facilitate stablecoin payments by avoiding the volatility of digital assets. That is set to change with what Circle has built over the last few quarters.

Collectively, they mark Circle’s attempt to go from a single-layer company to a full-stack financial platform that operates and captures value across multiple layers of the payment stack.

Today, I assess whether Circle can capitalise on vertical integration to offset the shrinking yield business, which is getting thinner with every Fed cut.

Onto the story,
Prathik

The Vanishing Float

In Q1 2026, Circle made $694 million in total revenue, up 20% year-on-year (YoY). That growth is solely attributable to the growing pie of stablecoins in circulation, with nothing specifically improving for USDC. Stablecoins in circulation grew over 30% from $235 billion in March 2025 to $315 billion in March 2026. During the same period, USDC lost 62 basis points in market share.

Circle faces a bigger problem. The low-interest-rate regime is here, with the Fed rate down from 4.5% a year ago to 3.75% today.

While average USDC circulation through Q1 2026 grew 39% YoY, Circle’s revenue from reserves grew only 17% YoY to $653 million. That’s because it was heavily offset by a 66 bps YoY decline in the average reserve rate, from 4.16% in Q1 2025 to 3.50% in Q1 2026.

This is not a one-time phenomenon. The gap between the growth rates of Circle’s reserve income and USDC’s supply has consistently dropped across the last four quarters.

Circle’s predominant source of income is not growing in proportion to its stablecoin supply in circulation.

The company also faces a value-leakage problem.

The 60-Cent Wake-Up Call

That’s more than 60 cents per dollar paid to platforms for holding and distributing USDC. Out of the $405 million, Circle paid $330 million (~80%) to Coinbase alone as distribution costs in Q1 2026. Of the $653 million in reserve income this quarter, Circle paid $405 million to partners under distribution and transaction costs.

That’s a lot of money left on the table in an industry that’s seeing new players expand and integrate across various layers of the stack.

At this point, there are too many signs for Circle to not wake up to the reality. Interest rates are falling and dragging down the reserve income with them; distribution costs are sticky and leaking value; and Circle’s core business remains a yield proxy, getting thinner with every Fed cut. The expectations of a dovish Fed stance have only intensified under U.S. President Donald Trump’s administration.

What’s Circle’s answer to all this? A vertical integration to capture more value across the stack and reduce reliance on interest rates for its topline.

To understand what Circle is building, consider what it has today.

The USDC-issuer started at the issuance layer, which is the bottom of the stablecoin stack, and spent years watching others capture value at every layer above it.

At the issuance layer, Circle mints USDC and EURC, holds reserves in US Treasuries via BlackRock’s Circle Reserve Fund, manages the 1:1 peg and processes mints and redemptions through Circle Mint. It earns 94% of its total revenue through reserve income by parking dollars in government debt.

It then expanded to the interoperability layer via Circle’s Cross-Chain Transfer Protocol (CCTP), which moves USDC between blockchains and handles approximately 60% of all cross-chain bridged volume. Although this plumbing routes USDC across chains, CCTP itself runs on chains owned by others. So, Circle doesn’t capture meaningful direct revenue from it.

All the other layers in the stack were owned by others.

Settlement ran on Ethereum, Solana, and Tron. Every USDC transaction paid gas in someone else’s token (ETH, SOL, TRX), while Circle had no control over congestion, fees, or governance on those chains.

Distribution relied on Coinbase, exchanges, and wallets. Circle paid revenue shares, incentive programmes, and integration costs to get USDC into the hands of users.

Third parties such as DeFi protocols, fintechs, neobanks, and prediction markets built applications and products that used USDC. This meant that the end customer, whether retail or institutional, never dealt with Circle directly.

The structure left Circle with barely 40 cents per dollar.

Owning the Stack

On May 11, Circle announced three bets to vertically integrate different layers of the stack it previously didn’t own.

First, settlement. With its native Layer-1 blockchain, Arc, Circle aims to capture fees that Ethereum, Solana, and Tron currently pocket by moving USDC on their chains.

The EVM-compatible Arc offers sub-second finality and uses USDC as its native gas fee token at roughly $0.001 per transaction. To make its chain more attractive for institutional users, Circle is offering configurable privacy and quantum-resistant architecture. The generic public chains, like Ethereum and Solana, are completely transparent and offer no privacy for sensitive transactions such as institutional payments.

Read: Making Blockchains Great Again

Circle has also raised $222 million at a $3 billion valuation via a presale of its ARC token. The investment was led by a16z’s $75 million round, along with BlackRock, Apollo, ICE (the NYSE’s parent), Standard Chartered, ARK Invest, SBI Group, IDG Capital, Bullish, and Haun Ventures.

Second, distribution. The Circle Payments Network (CPN) helps the USDC issuer reduce its dependence on Coinbase.

CPN connects financial institutions directly to Circle’s rails to mint, redeem, and route USDC without going through an exchange. The network has 136 enrolled institutions (up 36% QoQ), $8.3 billion in annualised volume (up 17% QoQ), and fiat payouts in 50+ countries.

As a result, the USDC sitting on Circle’s own infrastructure has almost tripled, from roughly 6% a year ago to 17.2%. The RLDC margin (Revenue less distribution and transaction costs as a percentage of revenue) has steadily climbed back to 41% in Q1 2026, from 38% in Q2 2025, even as the reserve return rate has fallen.

Circle isn’t monetising CPN yet, prioritising adoption over fees. But when it does, every dollar of CPN volume adds usage-based income without depending on interest rates.

Circle has built an entire Agentic economy through products such as Agent Wallets, Nanopayments (which enable gas-free USDC transfers as small as $0.000001 [a millionth of a dollar]), Agent Marketplace (where agents discover and pay for services), and Circle CLI (to accelerate agent onboarding and wallet provisioning).

Third, the application layer. With this third layer, Circle is positioning itself to capture consistent value across the entire Agentic economy by charging a small fee on high-volume transactions that AI agents are expected to carry out.

How big is the agentic payment opportunity? Last month, Circle’s marketing head, Peter Schroeder, posted that USDC accounted for 98.6% of 140 million transactions AI agents made in nine months.

The Stack Race

Circle’s move across the payment stack won’t be easy. Payment giant Stripe started at the top and has since made its way down with deals and launches. Acquiring Bridge gave Stripe ownership over licensing, custody, FX, and issuance layers. By launching Tempo, Stripe has entered the settlement layer. Stripe now controls all seven layers and serves 5 million merchants.

Read: Why did Stripe build its own chain?

Tether uses Plasma, which the USDT issuer incubated, as its settlement chain. However, Tether still doesn’t have the same regulatory might as USDC.

While Stripe owns human commerce, Tether leads in terms of emerging-market dollar access and crypto trading. So, Circle is positioning itself for institutional settlement and machine commerce, an area where regulatory credibility and programmable infrastructure will likely matter more than checkout integration that Stripe owns.

The CRCL Pushback

Although Circle raised $222 million from the presale of ARC tokens to institutional investors, it was the CRCL shareholders who funded the initial stage of Arc’s development. The irony is that Circle’s biggest headwind could be managing internal pushback.

What is the point of accruing value to the Arc token for a publicly listed company? I flagged this complication in November last year.

“The nature of the native token will ruffle a few feathers in the public markets. Why would the market approve of or attach value to a native token that captures the value Arc and CPN generate, rather than letting it flow back into Circle’s income statement? Why would Circle’s surplus be used to fund the cost centre that is not expected to plough back profits to the shareholders? The current shareholders won’t stand for it. Public market investors buy CRCL for its reserve income. They will likely not watch a new asset absorb the upside of the infrastructure they’ve financed.”

How will Circle thread this needle? Would a separate IPO for Arc justify its case? We will know this only in the first quarter after Arc goes live on the mainnet.

For now, Circle’s forward bet is to capture as much value as possible by compounding its presence across these layers. Each time USDC settles on Arc, Circle earns the settlement fee. When institutions route transactions through the CPN, Circle will retain the distribution margin. Finally, when agents transact via Nanopayments on Arc, Circle expects to collect the fee on that layer, too.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Galaxy Digital’s crypto book continued to bleed through Q1 2026, but its operating businesses are beginning to detach from crypto cycles, and the company is betting that keeping them together is the right strategy. In Q1 2026, BTC price fell by more than 20% and ETH by ~30%. Yet Galaxy’s trading desk volumes held flat. That’s the first sign of Galaxy’s business decoupling from the market’s cyclical nature.

In previous analyses of Galaxy’s earnings, I argued that the Helios data centre could become its hedge against crypto cycles. However, that argument was forward-looking and conditional on the company sticking to its construction schedules and contracted cash flows that hadn’t yet started.

In April, Galaxy delivered its first data halls in Texas to CoreWeave and is showing signs of diversifying its overall business towards the high-margin, non-cyclical nature of the data centre business. Although its revenue from the data centre business is insignificant, expect its financials to start looking different starting Q2 2026.

In today’s analysis, I will show you how Galaxy plans to evolve its two businesses together rather than split them, and how that will help the company achieve the stability few others can boast.

TL;DR:

• Galaxy’s Digital Assets segment delivered $49M in adjusted gross profit, roughly flat with Q4 ($51M), even as crypto prices dropped by around 25%

• Trading volumes at Galaxy held steady while industry-wide volumes declined by more than 20%

• Helios delivered its first data hall to CoreWeave, shifting from construction milestone to operational revenue

The First Correlation Crack

Galaxy’s financials still look like those of any other crypto company. Its Q1 adjusted EBITDA of negative $188 million was almost entirely driven by adjusted gross loss of $140 million in the Treasury & Corporate segment. Most of that loss was attributable to unrealised markdowns on its net digital asset exposure. Galaxy trimmed down its digital assets position to $667 million as of March 31, 2026, down 27% from $920 million at year-end.

The Digital Assets segment, which facilitates crypto trades, lends, manages assets, and builds infrastructure, earned $49 million in adjusted gross profit. That was nearly identical to Q4’s $51 million, despite higher crypto prices in that quarter. Lower prices hurt Galaxy’s business by driving away participants and drying up trading volumes. This also shrinks the loan collaterals on which Galaxy earns interest.

Activity in Galaxy’s trading desk also reinforces this trend. It processed roughly the same volume quarter-over-quarter while total industry trading activity contracted by more than 25%.

But what’s holding up Galaxy’s operations during a market meltdown?

The Stable Pillars

Diversifying its risk by expanding its product and client base has been Galaxy’s secret to staying afloat while its peers face the wrath of the market meltdown.

It spent the past 18 months layering fee-based and recurring revenue onto its trading desk. Asset management recorded $69 million in net inflows, although the AUM fell to $8 billion from $11.4 billion due to mark-to-market revaluation of existing holdings. Shortly after the quarter ended, Galaxy also secured a $75 million single-client mandate, one of the largest in its history. Galaxy added new clients and diversified its counterparty base despite the lending book shrinking by 20% due to depreciation in crypto prices and natural loan roll-offs.

In May, it will launch a fintech hedge fund that will invest in companies building tokenisation rails. It will also open its consumer-facing trading app, GalaxyOne, to businesses and allow institutions to trade, manage digital custody, finance, stake, and access crypto research. Both these ventures are expected to generate recurring revenue regardless of where Bitcoin or any other cryptocurrency trades.

The second move is strategic positioning.

Galaxy trimmed its Bitcoin exposure and rotated a significant portion of its balance sheet into Hyperliquid.

This rotation helped the balance sheet outperform what a pure beta position would have delivered.

But the biggest takeaway for Galaxy’s investors and analysts will be that the lights are finally on in Texas.

Lights, Camera, Data Centres

Galaxy’s Helios data centre site delivered its first set of halls to CoreWeave in Q1, which is expected to bring $1 billion in annualised revenue at full-capacity deployment by 2028.

Read: Galaxy Builds Beyond BTC

What was once planned as a Bitcoin mining site has been converted into a functioning AI data centre with live power distribution, cooling, and network connectivity.

Although the revenue from the data centre business was modest at $3 million, the company has stayed on schedule for its 133-megawatt Phase 1 launch. There are three aspects that I am most excited about in this business segment: the margin, the lack of seasonality and the contract length. These are 15-year contracted cash flows at approximately 90% lease-level EBITDA margins. When Phase 1 ramps fully in H2 2026, proportionate estimates suggest $250 million in annualised revenue entirely uncorrelated to digital asset prices.

For context, the Digital Assets segment generated $49 million in adjusted gross profit this quarter. That’d add up to $200 million in annualised revenue rate (ARR). Helios’ Phase 1 alone would generate more operating profit at $250 million in ARR and 90% EBITDA margins.

Galaxy has also secured approval for an additional 830 MW capacity from the Electric Reliability Council of Texas (ERCOT).

The company is in active conversations with additional tenants beyond CoreWeave regarding this expanded capacity. But why chase new tenants?

Galaxy doesn’t want to repeat the mistake of over-reliance on a single business or a single client. That’s probably why its president, Christopher Ferraro, wants the company to focus on a multi-tenant, multi-campus strategy.

But how will it fund these multiple sites, each requiring capital-intensive computing power, cooling equipment, and other infrastructure?

At Phase-1 of the Helios data centre, CoreWeave’s end customer using the GPUs is a multi-trillion-dollar investment-grade public company. This credit quality flows down to Galaxy’s financing terms for its future data centre projects.

Galaxy Dual Business Mode

Galaxy Digital’s two businesses are evolving with different capital needs, earnings profiles, and visibility. They seem to add little synergy and have no apparent reason to be run under the same entity. So, why not split them?

The company isn’t convinced that the segments will stay uncorrelated.

Most will see Galaxy as a simple crypto company about to spin off a data centre. But they miss out on the link that connects its crypto trading and data centre operations. When Galaxy’s data centre segment generates a billion dollars in annual revenue at 90% EBITDA margins, it can afford to run a crypto infrastructure business through bear markets without flinching.

While the data centre covers the fixed costs, the crypto business provides upside when markets turn. In that model, Galaxy’s cost of capital across both businesses falls because each one de-risks the other. The crypto business doesn’t need to generate enough margin to survive a downturn on its own. It can help the business stay afloat, as it did in Q1 2026, if it just covers its variable costs. The data centre can work independent of token prices, as it gets its demand from hyperscalers rusing to lock up computing power. But sharing balance sheet with a cash-generating crypto business gives Galaxy flexibility to self-fund early-stage development costs and move faster on new sites than a standalone data centre startup could.

None of this is conclusive. It’s the first quarter that gave signs of decorrelation as an observation. For it to be a pattern, the thesis needs to hold across the next 2-3 quarters.

What cannot be debated, though, is that the structure Galaxy is building is in the right direction. While its data centre business offers high-margin, contracted, predictable income, its trading segment offers low-margin, high-volume, cyclical crypto trading.

Three more quarters like this one, and Novogratz says he’ll celebrate.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

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Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Over the past year, we have spent a lot of time at Token Dispatch writing about perpetual futures (perps) venues. Their rise to fame made it impossible to ignore them. Perps allow participants to price events close to their occurrence, with high leverage and deep liquidity available around the clock. Existing exchanges never offered that because of their constrained trading time and days. An 11-member team rode on this 24/7 trading pitch and made Hyperliquid the fastest-growing crypto exchange, with almost a billion dollars in annualised revenue.

Throughout 2025, perp trading volume averaged seven times that of spot trading. It seemed like a guaranteed way to build a sustainable business. So the inevitable happened: others jumped on the bandwagon.

Last week, the two largest prediction markets, Polymarket and Kalshi, announced perpetual futures and crypto trading within hours of each other. This comes just months after Hyperliquid said it’d launch event contracts. The convergence of perps and prediction market venues is a no-brainer. Everyone wants to be the everything exchange, and offer a one-stop shop that brings together attention, capital and leverage.

Three weeks ago, Saurabh wrote in a note on X about why Hyperliquid’s expansion into prediction markets will help the exchange take over finance. But is that true the other way round too? Can Polymarket and Kalshi’s moves be similarly rewarding?

Today, I will tell you all about it.

Why Perps Matter for PMs

Prediction markets have a stickiness problem. They are often cyclical and see record-level trading volumes when there are events to bet on. Just like we saw it during a U.S. Presidential election, a Super Bowl season, or an FOMC meeting.

Polymarket’s monthly active users peaked at 321,500 in November 2024 during the U.S. Presidential Elections. Three weeks later, the number had dropped by 25% to 245,000.

However, with seasonal events, the monthly user count kept swinging in both directions.

In January 2025, it peaked at 500,000 users, then dropped below 200,000 in September. This tells us about Polymarket’s user-retention rate.

Dune’s cohort data shows that across every monthly cohort since 2024, only 8-11% of users are still trading a year after joining. About 75% of them vanish within 90 days. Users return for events and don’t necessarily find the platform sticky.

But that’s just part of the problem.

PMs also block capital until the issue is resolved. Perps are different. They price the event every second. It captures attention for extended periods and builds sustained engagement. It also makes economic sense for the PMs, since perps record far more trading volume and proportionally higher fee income.

In 2025, perps recorded over $60 trillion in notional trading volume, compared with $28 billion for PMs.

So, this adjacency expansion for PMs becomes a natural evolution. Platforms that capture one form of speculative intent often extend their reach to the next. They either build the capability or buy another player with that capability. We’ve seen this happen multiple times: Robinhood went from stocks to options to crypto to prediction markets (PMs). Coinbase acquired Deribit for a record $ 2.9 billion to venture into derivatives trading. Binance expanded from offering spot to futures to creating its native blockchain.

We see this often in the traditional world. A company expands the breadth of its services and hopes to cross-sell the new offerings to the same customers. It does two things: increases the average revenue per user (ARPU) and insulates the business from market cycles by diversifying reliance across multiple revenue streams.

In the early 1970s, the Chicago Board of Trade’s (CBOT) revenue from its commodity futures was dwindling. So they launched the Chicago Board Options Exchange (now known as Cboe) in what used to be a 4,000-square-foot smoking lounge of its parent company, CBOT. Both the products worked in sync because they needed a common infrastructure: risk management, clearing and a network of professionals who understood derivatives pricing.

But there’s a wide strait between wanting to run a perps venue and actually being able to execute one.

The Perps Stack

Running a perps exchange has too many moving parts. Let’s start with liquidity.

Hyperliquid processes over 200,000 orders per second through a fully on-chain order book. The perps venue clears over $6-7 billion in daily volume with two-sided market making. Lack of liquidity would lead to extreme volatility, wide bid-ask spreads, and high slippage. This makes it easy for whales to manipulate prices.

Second is the risk engine - the heart of any derivatives platform. It tracks every position and checks margin requirements on every order. When $19 billion were wiped out of the crypto market in October 2025, Hyperliquid processed billions in liquidations without downtime.

Then there’s the funding rate mechanism that keeps perps tethered to the spot price of the underlying asset. It runs continuously by settling small payments between long and short positions every few hours.

Building this entire stack isn’t the main problem. That I’m sure the prediction markets will manage to put together. The bigger problem is stress-testing that stack.

Hyperliquid built all this and stress-tested it in real-world scenarios, like the 10/10 crypto liquidation event and the U.S.-Israel-Iran war. It then launched event contracts via HIP-4 once the entire stack was in place to support that. Kalshi and Polymarket are trying to go the other way round. They have been running successful prediction markets that required none of the above stack in the first place. They are now going to fight for a share of the pie by not only competing alongside a highly successful Hyperliquid but also with an infrastructure that has not been stress-tested for the high-frequency activity seen in perpetual trading.

There’s a lot more stacked against PMs that makes the expansion to perps more difficult than the other way around.

The Hedging Synergy

On Hyperliquid, the risk engine sees all your positions across perps, spot and, soon, event contracts. Saurabh explained this in his note on HIP-4.

This common risk engine solves a core money problem by optimising the same capital across multiple trades a trader makes on the venue.

Consider a trader on Hyperliquid who is long ETH at 5x leverage. The trader is worried about the Fed decision next week, so she buys an outcome contract that says “Fed holds rates steady” at $0.65. With a common risk engine, both positions are held in the same margin account. If the Fed surprises with a cut, ETH rallies, her perp profits and the outcome contract loses only what she paid. If the Fed holds the rates, the PM contract pays out and partially offsets any drawdown on her perp.

This is why a PM platform or a perp venue cannot be a mere add-on feature. This hedging possibility is what makes HIP-4 valuable on Hyperliquid. An average trader on the platform sees PMs as insurance cover in case their existing perps position flips over.

Currently, the collateral on Polymarket and Kalshi is locked until the event resolves. So, unless they offer a common risk engine across their perps and prediction markets venues, it loses a crucial catalyst that keeps traders on the platform. Right now, neither platform has announced cross-margining between their PM and perps venues.

The category breakdown and average trader profile on PMs raise further concerns about their ability to replicate their success in perps trading.

Over 80% of Kalshi’s total monthly trading volume occurs in the sports category. For Polymarket, that share was over 40% in 2025. Now, how would you create a continuous pricing mechanism for a perps venue around these sporting events? That takes away a big chunk of its traders out of the perps equation.

Additionally, an average Kalshi trader is a retail user who has never touched crypto and funds their PM account via ACH transfers from their bank account. So, even if I assume the theoretical possibility of cross-margining on Kalshi, I doubt that these traders have the sophistication required to double down on their positions on the platform and use perps as a hedging strategy.

What Could Work for PMs

There’s one scenario where I expect the bets to work if Kalshi and Polymarket do announce cross-margining. Their institutional partnership with prime brokerages and clearing firms can encourage high-value, frequent trading activity across event contracts and perpetual futures.

It would let institutional desks treat PMs as part of a broader risk management toolkit.

Both Kalshi and Polymarket can boast about partnerships that will give them access to institutional clients.

Kalshi’s tie-up with FIS and Tradeweb data, and Polymarket’s deals with Intercontinental Exchange (ICE) could help retain institutional clients who value hedging their prediction market positions with perpetual contracts on the same platform.

That’s still a far-fetched wedge that rests on many things going right for both the prediction markets. They need to set up stress-tested infrastructure, ink partnerships and show their clients that their platforms can help optimise capital.

But this is what it takes for them to survive a cut-throat competition. With the distribution wedge already with Hyperliquid, they have no other choice but to maximise their chances elsewhere.

That’s it for today. I will be back with another deep dive.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Can a business generate more revenue on an unchanged or much lower trading volume base? Economics 101 suggests that when you raise the price, you lose customers. But Polymarket just raised the price, lost a customer, yet made more revenue.

Until earlier this year, the world’s largest prediction market by trading volume operated on a zero-revenue model. Users could trade, deposit, or withdraw without paying the prediction market a dime for most of its existence.

All that changed in less than a quarter.

Polymarket first announced fees on some of its market categories early this January. Three months later, on March 30, the prediction market went full throttle, announcing fees for all categories, barring geopolitical markets, and even increasing rates on categories that already attract fees.

The platform has now collected more fees in the 8 days since its announcement than it did in the entire month before it.

In today’s analysis, I will show you how Polymarket’s new fee structure reshapes how it builds liquidity on its platform amid market uncertainties.

The Volume-Fee Inversion

When Polymarket increased its fee rates across categories, the inevitable happened. The higher cost of making a prediction reduced trading volume. Did they expect that? Most likely. That’s Economics 101. But there was little cause for concern.

Although a higher fee reduced demand for Polymarket trades, the decline was not proportional to the price increase. Again, that’s Economics 101. As a result, Polymarket’s total fee collections increased.

Despite a

0 wasn’t the first time Polymarket moved away from the “more volume equals business growth” view. It first announced fees on some of its market categories in January this year.

This shift is evident in Polymarket’s daily take rate — fees as a percentage of total volume, which has been consistently rising.

From January through late March, this ratio crept upward, doubling from roughly 0.001 to 0.002. After March 30, that rate tripled and shot past 0.007. That’s about 70 cents of earnings on a sale of $100.

But how does a business generate more revenue on the same (or in fact lower) trading volume base? That’s what happens when a business targets users willing to pay a premium for access to better markets.

The fun part is in the formula it uses to calculate the fees.

Pricing Uncertainty

Polymarket doesn’t charge a flat fee, unlike conventional commission mechanisms. Instead, its fee varies depending on the likelihood of the outcome. The fee changes with probability: Fee = Shares × feeRate × Price × (1 − Price).

Every market on Polymarket is structured as a yes/no share. These shares trade between $0 and $1, reflecting traders’ estimates of the likelihood of the underlying event occurring. For example, a $0.90 price means traders collectively believe there is a 90% chance of the event occurring. Polymarket’s fee is designed to be the highest when the likelihood approaches 50% probability and to minimise toward zero as the outcome approaches certainty in either direction, 0 or 1.

This model ensures that Polymarket earns the most when traders trade in markets where the outcome is most contested. That’s because it makes economic sense (Economics 101, again). Think about it. A trade on an outcome with a 90% or 10% probability of occurring will yield a minimal payout. Why would such a trader trade anyway if the high cost of such a trade, via fees, further squeezes out their winnings? That would stifle trading activity at the margins.

Let’s understand this using a sample market: ‘Will Bitcoin hit $100K by June 30?’ Say the “Yes” share is trading at 90 cents. This means the traders are 90% certain that the BTC price will hit $100,000 by June 30. If you buy 100 shares at that price, you spend $90 and stand to win $100 if you’re right, giving you a profit of $10.

A flat fee of 1.5% on the $90 trade would cost you $1.35, reducing your maximum potential winnings of $10. Polymarket’s probability-scaled fee fixes this problem. When you buy the same trade of 100 shares on Polymarket, it charges you a fee depending on the likelihood of the occurrence of the event.

If the likelihood stands at $0.90 per share, then Polymarket’s fee comes up to $0.65. [100 shares x 0.072 (fee rate) x $0.90 (price) x $0.10 (1-Price)].

However, at 50-50 probability, the fee is maximum at $1.80 [100 shares x 0.072 (fee rate) x $0.50 (price) x $0.50 (1-Price)].

This ensures that fee collection is concentrated at that point on the probability curve where the stakes are the highest.

The Rebate Flywheel

There’s an interesting part about this bell-shaped fee model.

Polymarket doesn’t stop at charging takers a premium for offering tighter bid-ask spreads and good liquidity. Takers are those who want to make a trade by simply clicking on “Buy”/”Sell” at the market price. Polymarket allocates a share of the fee income to market makers as a rebate. Market makers help improve liquidity by placing deeper order books at limit prices.

These rebates attract more market makers, which in turn improve liquidity and attract more takers. The rebate share varies across categories 20% for crypto, 25% for politics and sports, and 25% for finance. Only geopolitical markets charge no taker fees and offer zero maker rebates.

Polymarket’s zero-rebate and zero-fee policy for markets related to geopolitics and world events reveals its approach to the category. It expects these markets to draw traffic by offering low friction, zero cost, and maximum visibility. Once it has captured the trader on its platform, Polymarket expects the trader to cross-trade across categories and pay fees across other categories.

The Liquidity Bet

Polymarket has been around for more than half a decade. Yet, it kept struggling to achieve its product-market fit for almost four years. Few knew about it or used it until the 2024 U.S. Presidential Elections gave it its aha moment.

After the election euphoria died down, people doubted whether the prediction markets would stay. Sports and crypto categories filled that gap.

Its fee announcement has boosted Polymarket’s revenue for now. But can it retain its users from leaving for its competitors?

History has some answers.

When Uber launched in 2012, it took 20% of every ride before giving the rest to the drivers. Over the years, the fee kept creeping up. By 2025, it even exceeded 40% in some instances. Drivers protested. Some quit. Yet, it didn’t matter. New drivers kept joining, and riders stuck to their favourite app.

The lesson was that if a platform raised fees gradually, users would absorb them as long as the alternatives were worse. Is it the most ethical thing for Uber to do? I may have my reservations about that.

But Polymarket is doing something more than just raising fees.

A flat fee hike extracts value from users who have nowhere better to go. But Polymarket’s bell curve charges the most where traders have the highest stakes and uses a share of that fee to reward the market makers who make the platform worth staying on.

Better rebates attract more market makers. More market makers create tighter bid-ask spreads and deeper order books. And that matters, because Polymarket runs a central limit order book where every trade pays a spread and large orders walk the book, incurring slippage. These costs don’t show up on a fee schedule, but they come out of the trader’s pocket.

A taker paying zero fee on a low-liquidity platform still loses to wider spreads and greater slippage on every trade. A taker paying a small fee on Polymarket gets tighter execution funded by the very rebate that fee pays for. If this flywheel is well-managed, the all-in cost of trading on Polymarket, with deep liquidity, will feel lower than on a platform with shallow liquidity. In this case, the fee becomes a small price to pay for better pricing.

That’s it for this week. I will be back with another one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Money often becomes useful only when it reaches its destination. A salary earned abroad can’t pay for rent, school fees, utilities and groceries back home until it passes through banks, FX desks, payout partners, and local compliance checks. Until then, it is a mere value in motion and not a medium of exchange.

The same problem is now showing up on-chain. Stablecoins move money globally in code, but their usefulness is tied to where they can plug in, who is allowed to use them, and which rules govern their reserves and redemption.

This concept stood out to me when I was reviewing Dune’s ‘Beyond Dollarisation: The Rise of Local Currency Stablecoins’ report.👇🏾

Read the Report Here

In today’s quantitative analysis, I will explain the factors that influence the growth of non-dollar local-currency-pegged stablecoins.

Onto the story,
Prathik

The Regulatory Teeth

Nowhere is the role of regulations more evident than in what happened with Tether’s euro-pegged stablecoin. When Europe’s Markets in Crypto-Assets (MiCA) regulation became applicable in 2024, it almost immediately spelt a death knell for Euro Tether (EURT).

One of the earliest and once-largest non-dollar stablecoins, EURT saw its circulation fall from over $400 million to around $50 million. As a result, the total supply of local currency stablecoins in circulation fell from $1 billion to $350 million.

Crypto enthusiasts often assume that code alone is enough. They create a token, add liquidity, and expect the market to do the rest. But non-dollar stablecoins are not just abstract internet money. They are trying to become better digital versions of euro, yen, baht and other local currencies that can move on public rails without being at the mercy of banking hours. Yet they operate within a domestic financial system, with reserve requirements, licensing norms, payment networks, and redemption expectations.

The shutdown of EURT is a reminder that being early and the largest is not enough. A change in the domestic rulebook can wipe out the first-mover advantage.

But regulation is not all bad for stablecoins. If that were the case, non-USD stablecoins might have stalled after the discontinuation of EURT.

If we exclude EURT, the total non-USD stablecoin supply nearly tripled, from ~$350 million in January 2023 to $1.1 billion by February 2026.

Widening the Market

Along with circulation, the number of addresses holding such a stablecoin balance grew from approximately 42,000 to over 1.2 million during the same period.

Monthly transfer volume rose from $600 million to $10 billion, a 16-fold increase. Monthly sending addresses climbed 22 times, from around 6,000 to 135,000.

The fact that both holders and senders grew faster than the supply suggests that the market expanded through increased participation.

Therefore, regulation is not always detrimental to the market, like it was for Euro Tether. Here, it attracted more stablecoin issuers and users.

Where is Non-USD Money Flowing?

By early 2026, unidentified transfers accounted for 38% of the total transfer activity in local-currency stablecoins. This likely reflects payment and settlement activity, including peer-to-peer transfers and transfers from self-custodial wallets to payment providers.

This was followed by lending at 29%, DEX activity at 17%, and CEX-related flows at 14%.

This breakdown shows that non-USD stablecoins are being used for two main purposes on-chain. One is using them to make payments, while the other is using them as money in motion between peers or businesses. Another is using them across DeFi primitives, such as lending and trading.

But there’s a caveat in this data. When you exclude euro-pegged stablecoins from the picture, the market takes a different trajectory.

Euro stablecoins, which account for over 90% of total transfer volume, are being used like financial assets in their own right. Users are parking them in lending markets, using them in DEXs, and treating them more like on-chain cash that can earn, collateralise, and circulate across DeFi. This gives local-currency stablecoins a more mature appearance.

EURC, along with EURS, EURm, and EUROe, has found its way into DeFi yield-generating venues such as Aave, Morpho, and Fluid.

When you strip out euro stablecoins, the remaining non-USD digital money is mostly used for settlement infrastructure.

Almost 8 in 10 non-USD, non-euro stablecoins fall into the unidentified transfers bucket. It likely captures wallets moving money, businesses settling obligations, remittance-style transfers, and payment flows passing through service providers.

The dominance of euro-pegged currencies among non-USD stablecoins suggests that the next phase of growth is more likely to be concentrated in DeFi primitives. Outside of the euro, the non-USD stablecoins will first scale as infrastructure to move domestic money across digital rails before they can be used in DeFi primitives.

This growth remains crucial, as it will come from stablecoins used for payroll, treasury management, merchant settlement, remittances, and foreign exchange (FX).

All of these sectors are more regulated than DeFi primitives, since operational money cannot tolerate ambiguity as well as a speculative asset can. If a token is expected to operate within domestic payment systems, treasury workflows, and compliance-heavy environments, it will demand predictable reserves, clear redemption processes, and legal clarity. Thus, regulation will play a crucial role in the adoption of non-USD stablecoins.

This also explains why growth is showing up in areas with mature financial systems. The report pointed out that activity in Brazilian Real (BRL) and Japanese Yen (JPY) accelerated following improvements to local frameworks. At the same time, the report noted that markets without dedicated regimes, such as Indonesia, lagged.

I also find an economic case for non-USD stablecoins.

Cross-border payments still carry high conversion costs, and remittances lose a significant chunk to FX spreads and intermediaries. More local-currency stablecoins can reduce the value that needs to be detoured through dollars before it reaches its destinations. That can reduce FX costs, remove settlement friction, and let businesses and individuals hold value in the currency they earn, spend and save in.

The potential is much larger than DeFi alone. Euro stablecoins have set a strong precedent for integrating local digital money into financial systems. However, reducing the cost, speed, and dollar dependency in cross-border money movement will be a bigger win on a global scale.

The issuers who can make local currencies easier to send, settle, and embed into existing payments infrastructure will be the ones to benefit from the enormous potential of non-USD stablecoins. If they can build conducive conditions for better adoption, DeFi integration will follow naturally.

That’s it for this week. I will be back with another one.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

DeFi protocols often report on their volume, sharing TVL charts and fee dashboards. What they rarely do is publish a full set of financial statements, including income broken down by segment, cash flow reconciliations, and treasury positions by quarter.

For a Solana liquidity protocol, Meteora’s 53-page annual token holder’s report for 2025 sets a new precedent.

The headline number shows over $182 billion in trading volume facilitated, growing 250% year-on-year (YoY). Meteora generated over a billion dollars in fees and a healthy treasury, earning it a 24-month runway. In a year when SOL lost nearly a third of its market capitalisation, Meteora remained one of the busiest platforms on Solana.

Read Meteora's 2025 Annual Report

One of the interesting stories in this report is its income statement, which reveals how Meteora’s flagship product and its most profitable products are two different things.

In today’s analysis, we will examine how this model works and explore where the billion dollars in fees flow after each stakeholder takes their share.

The Volume-Revenue Inversion

Meteora runs four on-chain programmes: DLMM, DAMM v1, DAMM v2, and DBC. The Dynamic Liquidity Market Maker (DLMM) is the protocol’s flagship product, the one the Liquidity Provider (LP) Army rallies around, and the one most people associate with the protocol. DAMM v1 and v2 are constant-product automated market makers (AMMs). Dynamic Bonding Curve (DBC) powers token launches through customisable bonding curves. Each programme collects swap fees from traders and splits them between liquidity providers and the protocol.

In FY2025, DLMM facilitated $168.3 billion in trading volume, while the remaining flowed through DAMM ($11.5 billion) and DBC ($2.4 billion) pools. It’s evident that DLMM is Meteora.

Yet, volume is not revenue.

DLMM generated $43.1 million in protocol revenue, barely a third of total revenue, despite generating 92% of the total volume. However, fees from DAMM pools and the launchpad partner (DBC) together generated $78.0 million, about 64% of Meteora’s total revenue.

This shows that Meteora’s flagship product, with utmost attention, and the major revenue-generating product are not the same. DLMM brings the volume, the brand recognition, and the LP community, while the DAMM and launch infrastructure bring the margin. Both are essential, and the interplay between them is what makes the model work.

But why does its flagship product generate only a third of the protocol’s revenue? To understand that, we need to look at the various kinds of assets that trade on each programme and the fees they generate per dollar of volume.

The Compounding Advantage

The gap in contribution is partly explained by the take rate, calculated as a percentage of fees retained by Meteora after paying the LPs. This rate varies across programmes. On DLMM, LPs keep 95%, and Meteora retains 5%. On DAMM and DBC, LPs keep 80%, and Meteora retains 20%. That’s because Meteora charges a premium on the newer programmes for the additional infrastructure they provide, including anti-sniper protections, dynamic fee mechanisms, and composable launch tooling that goes beyond routing swaps.

That’s a 4x differential between the flagship product and the one that contributes the most to its margins. But that explains only part of the gap.

The other part is explained by varying fee intensity, the amount of swap fees generated per dollar of volume.

DLMM primarily routes established trading pairs. SOL-USDC, major tokens, assets with deep order books and tight spreads. These pools compete on execution quality, which means fee tiers are set low to attract aggregator flow. Across FY2025, DLMM pools generated $907.3 million in fees on $168.3 billion in volume, with a fee-to-volume ratio of 0.54%.

The DAMM and DBC pools serve a different market. New token launches, memecoins, long-tail assets, and high-volatility, low-liquidity pairs. Fee tiers on these pools run wider to compensate LPs for the impermanent loss risk that comes with providing liquidity to assets that can move 30% in a day. DAMM pools generated $254.4 million in fees on $11.5 billion in volume, with a fee-to-volume ratio of 2.21%, roughly four times that of DLMM.

This is what compounds the gap between what both products contribute. For every dollar of volume, the DAMM and DBC pools generate approximately 4x as much in fees. Meteora then retains 4x more of those fees as protocol revenue.

This differentiation of how these two programmes work is key to Meteora’s structure. DLMM is built to win on execution and scale, while operating in a tight-fee, high-throughput and aggregator-friendly environment. The launch infrastructure stands out for its unique tooling, configurable economics, and a fee structure that reflects the premium value it provides to token creators. Together, they give Meteora a diversified top line that most single-product DeFi protocols lack.

But diversification only matters if both engines keep running. The quarterly data shows what happens when one of them stalls.

When the Launch Cycle Cools

In Q1, Meteora’s entire $36.5 million in revenue came from LP pools, when the launchpad infrastructure hadn’t shipped yet. DLMM contributed 58% of that quarter’s revenue. By Q2, partner fees first appeared at $8.6 million after Meteora went fully permissionless and launched DBC and DAMM v2. Immediately, DLMM’s share of revenue dropped from 58% to 17%.

Q3 was the launchpad quarter. Believe’s Internet Capital Markets (ICM) trend drove launch volume through Meteora’s bonding curves, and partner fees surged to $15.1 million, more than half the quarter’s total. For the first time, launch infrastructure was contributing more to the top line than both LP pool programmes combined.

Then Q4 arrived. Partner revenue fell 77% to $3.5 million as launchpad activity cooled. DLMM’s share climbed back to 47%.

The quarterly view reveals the trade-off.

The high-margin launch business can dominate revenue in a good quarter, but it’s cyclical. The lower-margin DLMM business doesn’t spike as hard, but it’s not over-reliant on narratives. In Q4, when launchpad revenue hit its lowest point, LP pool revenue from DLMM and DAMM still covered $13.8 million, comfortably above the protocol’s $1.5 million monthly burn rate.

While DLMM holds the fort during testing cycles, the launch infrastructure works as a catalyst during favourable times.

Where the Billion Dollars Go

In FY2025, Meteora generated $1.31 billion in swap fees, of which LPs received $1.19 billion (~90%). After their cut, Meteora retained $121.1 million in protocol revenue.

But Meteora did not receive all the $121.1 million it earned.

Fees are collected in the same tokens being traded. On a SOL-USDC pool, that means fees arrive in SOL and stablecoins. On a memecoin launch pool, fees accrue in the just-launched token, and that token can depreciate by 80% before the protocol converts it into a stable asset. Of the $121.1 million in accrued revenue, only $72.5 million was captured in the treasury as SOL and USDC/USDT. The remaining $48.6 million, roughly 40%, eroded in the gap between earning the fee and liquidating the token.

However, this difference between what is accrued and what is earned is present in every crypto protocol similar to Meteora.

The protocol has since addressed the leakage. Starting January 2026, a programme-level update periodically converts non-stablecoin fees into USDC. If it works as intended, the gap between earned and realised revenue should narrow meaningfully in FY2026.

What This Means

Meteora’s report gives us a complete picture of its economics, something that a DeFi protocol rarely offers.

It offers us a transparent understanding of how a protocol can facilitate $182 billion in trades, generate over a billion in fees, and still see only $72.5 million land in its treasury. But that’s the reality of running liquidity infrastructure, where most of the value rightly accrues to the capital providers who make it work.

What is most compelling is the architecture underneath. Meteora has built a model where a high-volume, lower-margin product sustains the brand and community, while a lower-volume, higher-margin product funds the protocol’s growth.

The 2026 roadmap signals that the team clearly sees this. Their planned convergence of LP and trading tools is an attempt to widen DLMM’s revenue potential by pulling traders, a far larger user base, onto the same platform. Meteora Labs and the Bedrock initiative are bets on expanding the variety and quality of assets launching through its infrastructure, which is where the margin lives.

Both moves point toward strengthening both engines rather than choosing between them.

For the broader DeFi industry, the lesson is not to lean too much into volume as a metric. Revenue composition is what determines whether a protocol can survive a down cycle, fund its own development, and compound over time. Meteora had the confidence to publish the numbers that make this distinction visible. More DeFi protocols should follow suit.

Until next time, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

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Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Everyone agrees that stablecoins are growing. Their supply in circulation has more than doubled, while the adjusted volume has more than tripled. All in just two years. Last month, stablecoins recorded a new all-time high in monthly adjusted volume. Some dismiss these figures, while Crypto Twitter (CT) celebrates them in real time.

But numbers alone tell us little about growth. What also matters is the context in which the growth is occurring, like who is using stablecoins, for what purposes, and whether the pattern of usage is changing. Allium was kind enough to give us an early glimpse of their latest report on stablecoin infrastructure, ‘Stablecoins: The emergence of a new payment rail’. It’s an important read because the charts show that stablecoin usage is shifting from enabling low-cost cross-border remittances to supporting general commerce and vendor payments across businesses.

Most of the debate around stablecoins today centres on whether they are financial products, such as narrow banks, Treasury-bill wrappers, yield vehicles, or simply payment infrastructure. The policy-level arguments over stablecoin interest assume that stablecoins are primarily financial instruments. But the data in the report suggests otherwise. The recent composition of stablecoin activity increasingly resembles a payment rail rather than a savings product.

It’s the same pattern we saw with the evolution of the Automated Clearing House (ACH) network: from replacing paper cheques in payroll to becoming a foundational backbone for general commerce, B2B payments, and consumer bill payments.

In today’s deep dive, I will weave together data from Allium’s stablecoin infrastructure report to show why it changed how I think about where stablecoins are heading.

The Velocity Divergence

Since January 2024, the stablecoin supply in circulation (calculated by deducting non-circulating supply from total supply) has grown by over 100%. Over the same period, adjusted volume (calculated by removing wash trading, entity-internal flows, and round-trip transfers) grew by 317%.

In the accumulation stage of any new asset, supply typically grows faster than usage. As the asset matures, usage grows faster than supply. That’s because asset holders are spending more of the asset. Here, as adjusted volume grows much faster than the circulating supply of stablecoins, it shows the maturity of stablecoins from store-of-value assets to a preferable medium of exchange or transfer of value.

This shift is reflected in stablecoin velocity, calculated as adjusted volume divided by circulating supply.

Stablecoin velocity has increased from 2.6x to over 6x in the past two years, reflecting that each dollar of stablecoin supply is now turning over 2.3 times more actively than it was in January. If you benchmark this against traditional payment rails, it shows how mature stablecoin usage has become.

Another metric that establishes the maturity of stablecoin usage is transaction count. It’s least susceptible to large-value noise. So, when the payment transaction count grows faster than the volume, it indicates that the average payment amount is decreasing. This behaviour is typical of a payment rail finding its footing, rather than of an experimental tool being shuttled between exchanges.

This raises the question of who is making all these payments and what they are paying for.

In 2025, the consumer-to-consumer (C2C) category remained the largest channel, ahead of consumer-to-business (C2B), business-to-business (B2B), and business-to-consumer (B2C). But its growth rate was the slowest among the four.

The slower growth in C2C reinforces the maturity of stablecoin usage, since person-to-person transfers are the simplest use case. They require no merchant integration, no invoicing tools, no API and face few procedural barriers to adoption. This is how every new payment technology typically begins.

In India, when the Unified Payments Interface (UPI) was launched a decade ago, retail users were the first to jump on board, driven by cashbacks and other customer acquisition strategies. I recall how I used to make transfers between my two accounts using Google Pay, initially launched as Tez in India, when it offered me a dollar in cashback. Shops and establishments joined the party only when business tools, reports, and a dedicated payment-confirmation audio device system were rolled out.

As infrastructure matures, commercial use cases begin to absorb market share. And that transition appears to be happening now.

High growth in C2B suggests that more users are using stablecoins for general commerce, subscriptions, and merchant payments. Meanwhile, B2B growth indicates adoption among commercial counterparties for invoicing, supply chain payments, and treasury operations. Both growth rates (131% for C2B and 87% for B2B) are outpacing the 76% overall payment growth, indicating that the commercial share of payment volume is expanding.

When you pair the growing C2B volume with the average ticket size of C2B transactions, which fell from $456 to $256, it suggests a trend of people paying for recurring purchases using stablecoins.

Although the peer-to-peer category remains dominant in absolute terms, it is soon ceding ground.

The quarterly share data makes this rotation even harder to miss.

The share of C2C as a percentage of total payment volume has never crossed 50% after dropping below the halfway mark in Q1 of 2025.

The world appears to be moving beyond experimenting with stablecoins for low-risk, less frequent peer-to-peer transfers to consistently using them for frequent payments.

When I first started tracking stablecoin adoption, one of the dominant narratives in favour of stablecoins was about how it enables cross-border remittances and could disrupt the Western Union thesis by allowing workers in developed economies to send money home. But the data says something different.

About three-quarters of stablecoin payment volume now occurs domestically. Over the past year, cross-border volume at the country level has dropped from 44% of total payments to roughly 25-29%. At the regional level, 84% of payment flows remain within the same geographic region.

Based on all our earlier charts, it’s clear that stablecoins aren’t competing with SWIFT for international settlement. Instead, the B2B metrics, including 74% domestic dominance, a falling average transaction size, payroll, and growing invoicing use cases, point to stablecoins competing with domestic payment rails like ACH.

For context, ACH B2B payments grew about 10% in 2025, while stablecoin B2B payments grew 87% over the same period. I am aware that the absolute scale isn’t even comparable, and we have to consider the low-base effect of stablecoins. Yet, the growth is hard to ignore.

The Path Ahead

For a long time, I viewed cross-border remittances and peer-to-peer transfers as the primary drivers of stablecoin adoption. The idea that someone in India could receive dollars from a family member in Dubai without losing 7-8% to an intermediary on a bank holiday is a compelling narrative. This story still exists, but perhaps no longer the main story.

I find it interesting how quietly and quickly the domestic commerce thesis has overtaken everything else. The fact that the C2C category has not reclaimed 50% market share for over a year now has not been a metric I have seen go viral in any of the CT chatter. But it’s the metric where stablecoins pivot from being a crypto product to financial infrastructure that enables commerce between a consumer and a business, or between two businesses.

It’s also worth noting that Allium’s labelled payment volume is an analysis built on the wallets they managed to cover, identify and label. While that analysis shows payment volume to be just 2-3% of the total adjusted stablecoin volume, that can only be a lower bound, considering that there will most likely be so many more wallets that Allium couldn’t include in its coverage.

Going forward, I will be closely watching whether C2B and B2B shares continue to gain ground and whether the average ticket-size compression holds in the upcoming quarters. If both trends persist even through a crypto market downturn, it would confirm that stablecoin payment infrastructure has begun to decouple from speculative crypto activity on a sustained basis.

That’s it for this week’s piece. I will be back with the next one.

Until then, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

“Forecasts usually tell us more about the forecaster than of the future.”

— Warren Buffett

Hello,

Money filters out cheap talk. Advocates believe this is why prediction markets are reliable. We saw people accurately predict the 2024 U.S. Presidential Election results on Polymarket and Kalshi. However, prediction markets aren’t new, nor is their success in accurately predicting political outcomes.

In October 1988, a group of economists at the University of Iowa backed their academic curiosity with a small-scale, real-money prediction market. They launched a futures market on the presidential election where participants could buy contracts that paid $1 if George H.W. Bush won and $0 if Michael Dukakis did. On election eve, Bush contracts were trading at 53 cents, while the conventional polls called the race tight. Bush ultimately won with 53.4% of the vote and a healthy 8-point margin.

Since that academic experience, such real-money futures markets have outperformed the conventional polls in every election in which forecasting was done more than 100 days in advance. In 74% of U.S. presidential elections since 1988, prediction markets have come closer to the eventual outcome than the polls.

This success stems from the mechanism that forces the expression of genuine belief backed by real money at stake, something the surveys could never do. The person who actually believed Bush would win bought the contract and held it. There was little incentive for random participants to spoil the prediction by placing $50 behind a claim they didn’t believe in. When this behaviour is aggregated across thousands of traders, the information converges on a price that reflects the genuine conviction of a larger population, rather than a small, disproportionate sample.

Iowa’s small academic experiment, run on a shoestring budget, has evolved into an institutional infrastructure today.

Last week, a working paper by Fed-affiliated economists said Kalshi, the largest regulated prediction market in the U.S., could serve as a valuable real-time benchmark for policymakers. The same week, NYSE president Lynn Martin said Polymarket, the world’s largest prediction market by volume, moved S&P futures on election night by pricing a Donald Trump victory before any news organisation called the race. Later, Kalshi announced a partnership with a trading platform handling $2.6 trillion in daily institutional volume.

In today’s deep dive, I will examine whether prediction markets can serve as a reliable barometer for policymaking and what risks they pose.

Prediction Markets as Policymaking Tools

The working paper found that Kalshi’s predictions were statistically similar to Bloomberg’s consensus, with almost identical forecast errors for core CPI and unemployment.

In fact, the paper also finds that Kalshi’s forecasts for the core CPI are significantly superior to Bloomberg’s estimates.

Despite similar statistical performance, what sets Kalshi apart is its ability to provide more frequent, real-time updates to probability curves for macroeconomic indicators such as GDP growth, core CPI, and unemployment. For estimates like inflation, the Bloomberg consensus is available only in the months leading up to a release. That makes conventional estimates less frequent, with wider gaps that don’t reflect real-time updates to expectations.

Kalshi not only provides predictions for an outcome but also the real-time range of uncertainty and tail risks. In early April 2025, uncertainty about trade policy temporarily heightened inflationary expectations. Although the uncertainty did not materialise, Kalshi priced the changing dynamics in real time. The monthly Bloomberg estimates will never capture this nuance.

Today, Kalshi’s market odds move in real-time when a Fed governor speaks at an FOMC meeting. They price in every remark by the governor and offer policymakers a glimpse of how traders interpreted the intended message.

For instance, when Christopher J. Waller made accommodative remarks ahead of the July 2025 FOMC, the probability of no rate change dropped to 75%. After the June jobs report came in stronger than expected, it snapped back above 90%. The entire expectation of traders, backed by real money, is visible to policymakers in a way that no other instrument currently does.

Who’s Trading on These Markets?

Before deciding how much to trust prediction markets, it is important to examine who is trading and what the volume represents.

Between September 2024 and January 2026, the volume on the FOMC meetings grew 11-fold from $59 million to $660 million on Polymarket. In total, Polymarket’s FOMC markets have processed $2.6 billion, more than the platform’s culture, economics, geopolitics, and science categories combined.

So, who is trading such volumes on FOMC meetings? While there’s no easy way to find out on a pseudonymous prediction platform like Polymarket, I’d like to guess. It’s difficult to look beyond macro hedge fund analysts involved in drafting the labour statistics report or money market fund managers who profit if rate cuts don’t come.

Why them? Iowa markets worked because people putting money where their mouths are outnumbered participants who were just betting on noise without reliable information. Noting the risk of over-assuming, I’d like to think that when real stakes and money of this magnitude are involved, people with reliable information will gravitate toward the market, leading to more accurate price discovery.

What to Watch Out For

None of this means that prediction markets can be the perfect measuring tools for policymakers.

The probability in prediction markets also reflects traders’ risk preferences. It is not a raw reflection of expectations of an outcome. For example, when Kalshi prices a 15% probability of an adverse CPI print, whereas conventional surveys price at 10%, the gap can be justified by two factors. First, prediction markets may be pricing in real-time information that the Bloomberg consensus misses. Second, traders might be paying a premium on prediction markets to hedge against unfavourable outcomes.

Policymakers must understand what the gap reflects before they look at the information as a signal for their policymaking.

While Kalshi appears to be reliable for macroeconomic signals to policymakers, over 85% of its total notional volume is accounted for by the Sports category.

Currently, at least 20 federal lawsuits are contesting the regulatory arbitrage enabled by prediction markets through nationwide sports betting. FOMC markets on Kalshi are reliable partly because sports betting provides the platform’s baseline liquidity through active traders, tight bid-ask spreads, and market-making infrastructure that keep all Kalshi markets functioning. Macro markets benefit from this foundation even though they operate independently. If sports betting disappears under regulatory pressure, the platform loses the liquidity engine that keeps spreads tight and prices continuous across all categories, including FOMC. Thinner macro markets become easier to move with less capital, and therefore more susceptible to manipulation.

The working paper recommends using Kalshi as a monitoring tool, not a decision-making input. But making that intention public is itself the problem.

The authors suggest using Kalshi more as a tool to interpret incoming data and check the real-time interpretation of Fed communications. Yet, since the intention to refer to prediction markets is made public, it could create a feedback loop.

For example, a policymaker at the Fed could see Kalshi pricing a 15% probability of a rate cut, lower than what they expected to convey with their decisions. In response, they might soften the phrasing in their next remarks, which could then prompt conventional rate markets worldwide to move. The problem here is that while Kalshi’s FOMC market is $660 million, the Fed Funds Futures market is tens of billions of dollars. The former needs a relatively small position to swing the odds. A well-capitalised actor who understands that moving Kalshi can influence what the Fed says next, if not what it decides, can use a relatively small position to move a much larger market. Policymakers’ communication can become the target of manipulation.

This scenario highlights the difference between Iowa’s 1988 futures markets and the prediction markets of 2026. The Iowa economists were trying to determine whether a market with real stakes could produce better forecasts than a survey. At the time, policymaking wasn’t being closely watched enough to deter manipulators.

The prices reflected genuine belief because these prices did not move the world. They merely allowed those with opinions to monetise them. Once the Fed publicly announces, if and when it does, its intention to use prediction markets as policy input, that property is lost. It also introduces a performative element to trading.

Yet, it is not a miscalculated suggestion to include prediction market odds in the policy toolkit. Financial commitment still filters out cheap talk. Informed participants continue to dominate price discovery. What results is a signal that surveys can never match in terms of speed and distributional richness. And this case is stronger for FOMC markets than any other application. There are participants on both sides, enabling genuine hedging capabilities, and the markets are more reflective of real-time expectations through frequent pricing of real-time events.

Policymakers should make it mandatory to demand open-source data transparency as a condition of official adoption. If the data cannot be audited, the manipulation could go undetected. They should understand that both the signal and noise come from the same place. People with real money and genuine beliefs can tell you in real time what they think.

The window of opportunity for anyone powerful enough to game the system did not exist when Iowa economists ran their academic experiment for decades. Today, that window is wide open than ever before.

That’s it for this week’s piece. I will be back with the next one.

Until then, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Over a year ago, becoming a Digital Asset Treasury (DAT) looked like a no-brainer for scores of corporates looking for a bump in their share price.

Some Microsoft shareholders convened and requested that the Board evaluate the benefits of holding some Bitcoin on its balance sheet. They even mentioned Strategy (formerly known as MicroStrategy), the largest publicly listed Bitcoin DAT.

There was a financial flywheel for everyone to follow.

Buy a pile of BTC/ETH/SOL. Watch the stock trade above the pile’s value. Issue more shares at that premium. Buy more coins with that money. Repeat. The financial flywheel behind a publicly-listed ticker seemed nearly flawless to tempt investors. They were paying more than two dollars to gain indirect exposure to Bitcoin worth only a dollar. Those were crazy times.

But time tests the best of strategies and flywheels.

Today, most of these wrappers have a market-cap-to-net-asset-value (mNAV) ratio below 1, as the crypto market has lost more than 45% of its market capitalisation over the last four months. This indicates that the market values these DAT companies at less than the value of their crypto treasuries. This changes how the financial flywheel operates.

Because a DAT is more than a wrapper around an asset. In most cases, it is a company with overhead, financing, legal and operational costs. In a mNAV-premium era, DATs funded their crypto purchases and their costs by selling more stock or raising more debt. In a mNAV-discounted era, this flywheel falls apart.

In today’s analysis, I will show you what prolonged discounts on mNAVs mean for DATs and whether they can survive crypto bear markets.

Between 2024 and 2025, over 30 companies rushed to transform into DATs. They built treasuries around blue-chip cryptocurrencies, such as BTC, ETH, and SOL, along with a long tail of memecoins.

At its peak on October 7, DATs held cryptocurrencies worth $118 billion, with the market cap of these companies exceeding $160 billion. Today, DATs hold cryptocurrencies worth $68 billion, with a discounted market cap of just over $50 billion.

All their fortunes were tied to one thing: their ability to wrap an asset and manufacture a story that makes the wrapper trade above the asset value. That difference became the premium.

The premium became the product. If the stock traded at 1.5x the mNAV, the DAT could sell $1 of stock and buy $1.5 of crypto exposure, and characterise the transaction as “accretive”. Investors paid the premium, believing that the DAT could continue selling stock at a premium and use the proceeds to accumulate more coins, thereby increasing the crypto per share over time.

The problem is that premiums don’t stay forever. The moment the market stops paying extra for the wrapper, the “sell stock to buy more coins” flywheel stumbles.

When the stock no longer trades at 1.5x the value of its assets, each new share issued buys less crypto. The premium ceases to be a tailwind and becomes a discount. This is exactly what my colleague, Saurabh, highlighted in his piece for Decentralised.Co.

Read: Asset-Wrapped Equities

With the underlying crypto market struggling, stock premiums have now turned into discounts.

The stock prices of leading DATs in BTC, ETH, and SOL have fallen more than the cryptocurrencies themselves over the past year.

Once the markup premium of the stock over the underlying asset vanishes, investors will naturally ask why they can’t just buy the cryptocurrency cheaper somewhere else, say on decentralised or centralised exchanges or exchange-traded funds (ETFs).

Bloomberg’s Matt Levine asks an important question: If DATs won’t trade even at NAV, let alone a premium, then why shouldn’t the investors force the company to liquidate its crypto treasury or buy back the shares?

Many DATs, including the leader of the pack - Strategy, try to convince the investors that they will hold their crypto through the bear cycle and wait for the premium-era to be back. But I see a more critical problem here. If DATs can’t raise additional funds for an unforeseeable and prolonged period, where will they source funds to operate the shop? These DATs have bills and salaries to pay.

Strategy is an outlier for two reasons.

• It reported holding $2.25 billion in reserves to cover its dividend and interest obligations for approximately 2.5 years. This is important because Strategy is no longer relying solely on zero-coupon convertible bonds to raise funds. It also has preferred instruments with significant dividend payouts.

• It also has an operating business that, however small, still records recurring revenue. In Q4 2025, Strategy reported $123 million in total revenue and $81 million in gross profit. Although Strategy’s bottom line could swing significantly based on the mark-to-market value of crypto prices in each quarter, its business intelligence arm is the only source of tangible cash flow.

But this still doesn’t make Strategy’s play invincible. The market can still punish the equity, as it has over the past year, and impair Strategy’s ability to continue raising funds at lower costs.

While Strategy may weather the crypto bear cycle, newer DATs that lack sufficient reserves or an operating business to cover their unavoidable expenses will feel the squeeze.

This distinction is even clearer with ETH DATs.

BitMine Immersion, the largest ETH-based DAT, has a marginal operating business to support its ETH-treasury. In the quarter that ended on November 30, 2025, BMNR reported total revenue of $2.293 million, comprising consulting, leasing, and staking revenue.

The balance sheet shows the company holding digital assets valued at $10.56 billion and cash equivalents of $887.7 million. BMNR’s operations contributed to a net negative cash flow of $228 million. All of its cash requirements were met through the issuance of new shares.

Raising funds was relatively easier for BMNR last year, as its stock traded at an mNAV premium for most of the year. Over the past six months, the mNAV has declined from 1.5 to about 1.

So, what happens when the equity doesn’t trade at a premium anymore? Issuing more shares at a discount could reduce the per-share price of ETH and make it less attractive to investors than buying ETH directly from the market.

It explains why BitMine said last month that it would invest $200 million for a stake in Beast Industries, a private company owned by YouTuber Jimmy “MrBeast” Donaldson. The company said it would “explore ways to collaborate on decentralised finance initiatives”.

ETH and SOL DATs may also argue that staking income, which BTC DATs can’t boast, could help them remain afloat during market meltdowns. But that still doesn’t solve the problem of meeting the cash flow obligations of a company.

Even with staking rewards, which accrue in crypto - either ETH or SOL, DATs will not be able to pay salaries, audit fees, listing costs and interest, as long as they are not converted to fiat. The company must either have enough fiat revenue or sell or rehypothecate its treasury to meet its cash needs.

This is evident in Forward Industries, the biggest SOL-holding DAT.

FWDI recorded a net loss of $586 million in Q4 2025 despite earning $17.381 million in staking and related revenue.

The management explicitly stated that its “existing cash balance and working capital will be sufficient to meet our liquidity needs through at least February 2027”.

FWDI also discloses an aggressive capital-raising strategy that involves at-the-market share issuance, buybacks, and a tokenisation experiment. However, all these may be unsuccessful attempts to manage the wrapper price if the mNAV premium doesn’t exist for an extended period.

The Road Ahead

Last year’s DAT boom centred around the speed of asset accumulation and raising funds by issuing stock at a premium. As long as the wrapper traded at a premium, DATs could keep turning expensive equity into more coins per share and call it “beta”. Investors pretended that the only risk was the asset price.

But premiums don’t stay forever. Crypto cycles could turn them into discounts. I wrote about this when we first observed premiums declining within weeks of the 10/10 liquidation event last year.

Read: Where’s DAT Beta? 🎁

However, this bear cycle will prompt DATs to evaluate whether their wrappers should continue to exist once they no longer trade at a premium.

One way to address this dilemma is for the company to enhance its efficiency to complement its DAT strategy with a cash-flow-positive business or surplus reserves. That’s because when the DAT story stops selling during bear markets, a routine corporate story decides its survival.

If you read Strategy & Marathon: Faith and Power, you’ll recollect why Strategy still manages to stay afloat across multiple crypto cycles. However, the newer cohort, including BitMine, Forward Industries, SharpLink, and Upexi, cannot rely on the same muscle.

Read: SharpLink and Upexi: DATs with Tradeoffs

Their current experiment with staking yield and a thin operating business could collapse under market pressure unless they consider alternative options to cover real-world obligations.

We observed this with ETHZilla, an Ethereum treasury company, when it sold approximately $115 million of its ETH holdings and purchased two jet engines last month. The DAT then leased the engines to a major airline and engaged Aero Engine Solutions to manage them on a monthly fee basis.

Going forward, I will evaluate not only the digital-asset accumulation strategy but also the conditions under which it can survive. In the ongoing DAT cycle, only those who can manage their dilution, liabilities, fixed obligations, and trading liquidity will be able to outlast market downturns.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until then, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Just when you think finance is boring, it surprises us. Lately, it seems that everyone is rebuilding finance in ways few would have anticipated. Even those coming from the entertainment and media industries.

Take Jimmy Donaldson, also known as “MrBeast” on YouTube and the owner of a snack empire, who acquired a banking app to make financial literacy and money management accessible among teens and young adults. Why? Perhaps nothing comes closer to monetising a 466-million subscriber base with a financial product.

This summer, CME Group, the world’s largest derivatives marketplace, is launching Single Stock futures that will allow users trade futures on more than 50 top U.S. single stocks, including Alphabet, NVIDIA, Tesla, and Meta.

Such reinventions show us what’s changing in how people want to engage with finance. Few things demonstrate this better than the explosion of perpetual markets in the past couple of years.

Perpetual futures, or perps, are a type of financial derivative contract that allows market participants to speculate on an asset’s price without an expiration date. Perps also let people express opinions on assets quickly and cheaply. They are more fascinating than traditional markets because they offer instant access and leverage. Unlike traditional markets, these require no brokerage onboarding, no jurisdictional paperwork, and don’t follow “conventional” market hours.

Moreover, on-chain perp markets can make any asset, traditional or crypto, available for trading in a permissionless and highly leveraged manner. This makes speculation fun. Especially when humans can’t resist betting on the trajectory of an asset during choppy times outside conventional market hours. This enables risk to be priced in real time.

Consider what happened a couple of weeks ago. When both the traditional and crypto markets were in meltdown, traders flocked to Hyperliquid, driving perpetual gold and silver trading into a frenzy. On January 31, Hyperliquid alone captured 2% of the world’s daily silver market trading volume on its Silver perp market that was launched barely a month ago.

That explains why perp volume dashboards are increasingly dominating crypto communities and forums. Volume is an absolute number. It appears big, refreshes every few minutes and makes for great leaderboards. But then it misses a key nuance. Volume can reflect motion that could lack meaning. A market can trade a lot because it’s deep. However, it can also trade due to rewards and incentives that encourage greater activity. This activity is often recursive and lacks meaning.

This week, I delved deeper into additional metrics for perp trading markets, which, when paired with volume, add greater nuance and tell different stories than volume alone.

Let’s get started

The user-friendly interface of perpetual markets has made them a low-barrier, default interface for expressing opinions across various markets and global assets.

The wide range of options to trade derivatives on both traditional and crypto assets on a single platform with high leverage has led perps to surpass spot volume on decentralised exchanges. From 44% in February 2025, perp volume dominance has surged to ~75% today relative to spot volume.

This increased perp activity has been even more pronounced in the past few months.

The cumulative perpetual trading volume across all platforms for the four years ending July 31, 2025, totalled $6.91 trillion. In just the last six months, that volume has doubled to $14 trillion.

All this growth has occurred despite the crypto market cap slipping almost 40% between August 1, 2025, and February 9, 2026.

The activity indicates that traders increasingly prefer derivatives trading, hedging, and short-term positioning, especially when the spot market becomes choppy and bearish.

But there’s a catch here. With so much activity, it’s easy to misinterpret the volume metric. Especially because perp trading isn’t merely buying and selling an asset after holding it for long periods. It also includes repeatedly resizing a bet with leverage and tighter timeframes.

So, when the market’s turnover accelerates quickly, an inevitable question crops up in my mind: Is all the record-high volume reflecting more capital inflow, or is it because the same capital is cycling faster?

This is where looking at Open Interest (OI) helps. While volume reflects capital flow, OI measures outstanding exposure. On perp exchanges, OI is the total dollar value of active and unsettled long and short contracts held by traders.

If perp trading is adopted by mass markets, one would expect not only greater capital flows but also a proportionally larger outstanding exposure.

From averaging around $4 billion in February last year, OI has more than tripled to roughly $13 billion. In fact, it averaged ~$18 billion throughout January before declining by ~30% in the first week of February.

Although perp volume has doubled over the last five months, OI rose by roughly 50%, from $13 billion to approximately $18 billion, before falling back to $13 billion.

To understand this better, I look at how capital efficiency, OI as a percentage of Daily Volume, has moved over the past year.

The OI/Volume ratio has jumped 50%, from 0.33x last year to 0.49x today. But that progress hasn’t been smooth. The ratio experienced multiple peaks and troughs during its 50-basis-point growth.

The first phase was a quiet one, between February and May 2025. The OI/Volume ratio averaged ~0.46x, with average OI around $4.8 billion and average daily volume around $11.5 billion.

Then the ratio jumped and averaged about 0.72x between June and mid-October, the second phase. In this period, average OI rose to $14.8 billion, and daily volume averaged $23 billion. This signalled not only record-high trading volumes but also increased risk exposure and greater capital commitments to these derivatives.

In the third phase, the market reversed. The start of this phase coincided with the mass liquidation on October 10 that wiped out over $19 billion in leveraged positions within 24 hours.

From mid-October to late December, the OI/Volume ratio dropped to ~0.38x, driven mainly by a rise in volume while open interest stayed mostly stagnant. October, November, and December recorded the three highest monthly trading volumes in 2025, averaging over $1.2 trillion.

During the same period, OI averaged ~$15 billion, marginally less than the average in the preceding three months.

This is where I wish to add more nuance to the analysis of the perp market at the protocol level. This helps us understand how efficient perp exchanges are at converting trading activity into sticky capital and revenue.

As of February 10, here’s how the top five perp exchanges by 24h volume stack up:

With an OI to average daily volume (across 7 days) proportion of over 45%, Hyperliquid converts a large share of its volume into persistent positions. It shows that $4.5 out of every $10 traded on the platform is committed to active positions. This matters because a higher OI rate yields tighter spreads, deeper liquidity and the confidence to scale size without slippage.

Hyperliquid’s fee income reinforces this story. At approximately 3.2 basis points of take rate, Hyperliquid is converting the largest share of 24-hour volume into fee income.

Aster, currently ranked second, also has a decent OI/Volume capital efficiency of 34%, despite having almost half the volume of Hyperliquid. What stands out, though, is monetisation. With a lower take rate of ~1.6 bps, Aster is prioritising capital retention on its platform over fee maximisation.

Meanwhile, edgeX and Lighter perform similarly on the capital-efficiency ladder, with 21% OI/Vol. However, edgeX is comparable to Hyperliquid in fee monetisation, at 2.8 bps.

What stands out is that the perp market today is less of a plain-vanilla growth story and requires a nuanced interpretation of multiple metrics. At the aggregate level, volume has exploded. In six months, cumulative perp volume grew more than it did in the four years before. But the picture becomes clearer when OI and volume are read together.

Yet, what’s a clearer win is when the OI/Vol ratio grows. It is a direct signal of patient capital willing to trust and bet on various products and markets emerging on perpetual trading exchanges.

What is more interesting to monitor is how individual players progress from here and what they choose to optimise for. Over time, exchanges that optimise for conviction and monetise it sustainably will matter far more than those that top the volume charts by relying on rewards and incentives.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until then, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

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Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Credit is the economy’s time machine. It allows businesses to bring tomorrow’s cash flows into today’s decision-making.

I consider it one of the most underrated aspects of the financial world.

Seldom do people notice credit when it works. But it appears in how businesses function. An effective credit system enables businesses to replenish inventory before shelves are completely empty. A factory can upgrade its obsolete equipment before it breaks down. A founder can hire an extra person before human resource redundancies become a crisis.

The gap between a good idea and its execution is often due to limited access to credit. This gap is what banks promise to fill.

Banks accept deposits from customers through bank accounts and extend credit to those seeking loans. They pay their customers lower interest rates than they charge borrowers, pocketing the difference as profit. However, bank credit comes with challenges. The credit demand-supply mismatch is one of the most significant ones.

Private credit pitches in where banks can’t reach, but the gap persists. This gap reflects investors’ reluctance to lend in the current credit markets.

In March 2025, a report by IFC–World Bank MSME Finance Gap estimated a financing gap of approximately $5.7 trillion across 119 emerging markets and developing economies (EMDEs). That’s about 19% of their collective GDP.

In this context, I find last week’s developments in the on-chain credit space promising. On-chain lending isn’t new. We saw a crazy cycle in 2022 that is still debated today for various reasons. But this current cycle feels different.

In this week’s analysis, I dive into all that has changed in the on-chain credit market and tell you why it makes me feel it could change credit for good.

Let’s get started, shall we?

We’ve had money markets on Ethereum for years. Over-collateralised borrowing, liquidation bots, rate curves, and occasional liquidation cascades are not new at all. So, when credit-related announcements came out last week, it was the players who joined the game and how they are repackaging credit that grabbed my attention, not the primitive itself.

What excites me is that these isolated partnership announcements collectively signal a broader convergence. What began in siloed DeFi during the summer of 2022 is now coming together. Vault infrastructure, non-custodial wrappers, professional risk managers, and automated yield optimisation are all being integrated and distributed.

Kraken rolled out DeFi Earn, a retail-friendly wrapper that routes lender deposits into vaults (Veda, in this case). The vaults will then direct funds to lending protocols such as Aave. Chaos Labs will serve as the risk manager, monitoring the engine. Kraken promises to offer its lenders an annual percentage yield (APY) of up to 8%.

What changes with vaults? They offer lenders self-custody and visibility. Instead of handing their money to a fund manager, as in traditional credit markets, and waiting for monthly disclosures, vaults are integrated with smart contracts that mint claims on the funds and display real-time deployment on the blockchain.

Around the same time, Bitwise, the world’s largest crypto fund manager, launched non-custodial vault strategies on Morpho, an on-chain lending platform.

That’s not the first time on-chain lending has received institutional validation. In 2025, Coinbase launched USDC lending, enabling a smart contract wallet to connect and route deposits into Morpho via on-chain vaults. Steakhouse Financial curated this to allocate funds across markets and optimise returns.

It comes at a time when the on-chain lending market is looking set to explode. The data establishes this.

The total value locked (TVL) in lending protocols stands at $58 billion, up 150% over two years. Yet, this figure is only 10% above the 2022 highs.

This is where the active loans outstanding dashboard reflects a more accurate picture.

The dashboard shows a solid foundation laid by incumbents, including Aave and Morpho, with active loans exceeding $40 billion over the last few months, more than double the 2022 highs.

Both Aave and Morpho today make six times the fees they did two years ago.

While these visuals demonstrate investors’ confidence in lending protocols, I find the growth in vault deposits over time even more compelling.

In October 2025, total vault deposits exceeded the $6-billion mark for the first time ever. Today, those deposits stand at $5.7 billion, more than double last year’s amount ($2.34 billion).

These charts show that users are choosing products that offer a comprehensive ecosystem, including vaults, yield-optimisation strategies, risk profiles, and professional managers.

This is the evolution I am optimistic about, in contrast to what we observed during DeFi Summer. At that time, the lending market appeared to be a closed loop. Users leveraged the loop by depositing collateral, borrowing against it, using the proceeds to purchase additional collateral, and redepositing it to earn higher yields. Even if the price of collateral fell, these users at least received incentives from the platform for using the platform's lending protocols. But when the incentives themselves fade? The loop snapped.

Even the current cycle is built on the same primitive - over-collateralised borrowing, but is based on a different and robust foundation. Vaults today have become wrappers that convert protocols into automated asset managers. Risk managers have taken centre stage to set guardrails.

This shift changes how on-chain lending appeals to investors and lenders.

During DeFi Summer, lending protocols were merely another avenue to make quick money. It worked until the incentives dried out. Users opened Aave, added funds, borrowed against collateral, and repeated the process until the incentives dried out. We saw this with Aave’s Avalanche deployment, where incentives attracted deposits and initially financed the loop. But when the subsidy weakened, the loop unwound. As a result, outstanding debt on Avalanche dropped 73% quarter-on-quarter in Q3 2022.

Today, lending has evolved into a well-supported ecosystem with specialised actors, each responsible for risk, yield optimisation, and liquidity.

Here’s how I’d put the entire stack together.

At the bottom is the settlement money in stablecoins. They can be moved instantly, parked anywhere, deployed at any time, and, crucially, measured easily.

Above this sit familiar money markets, like Aave, where lending and borrowing are enforced by software code and collateral.

Then comes the world of wrappers and routers, which pool and route funds from lenders to borrowers. Vaults act as wrappers that package the entire lending product in a way that makes sense to retail investors. It could appear as “deposit $X, and earn up to Y%,” as Veda wallets do on Kraken’s Earn platform.

Curators sit above these protocols, deciding what collateral to allow, liquidation thresholds, exposure concentration, and when to unwind a position when collateral value declines. Think of what Steakhouse Financial does on Morpho or how asset managers like Bitwise feed their judgment directly into vault rules.

In the background, AI systems operate 24/7 to manage on-chain credit risk and serve as the nervous system for the lending ecosystem when humans are away. Manual risk management is difficult to scale. Constrained risk management increases credit risk during periods of volatility. It could result in substandard yield at best, or liquidation at worst.

The AI optimisation engine tracks borrowing demand, oracle deviations and liquidity depth to trigger timely withdrawals. It triggers alerts when vault exposure drifts beyond pre-established thresholds. It advises on de-risking actions and supports the risk team in decision-making.

It is this round-the-clock optimisation, de-risking, audited vaults, curated strategies, institutional validation, and professional risk managers that make the current market feel safer and carry fewer risks.

But none of these completely eliminates risk. One of the most overlooked risks is liquidity risk.

While a vault offers “better liquidity” than siloed protocols, it still operates in the same market as those protocols. Vaults can make it difficult to exit funds by increasing unwinding costs in thin markets.

Then there is the risk of the curator’s discretion.

When users deposit in a vault, they are trusting someone’s discretion on what markets to allocate to, which collateral to trust, and what unwinding thresholds to set. This is how credit works everywhere, but lenders should understand that non-custodial does not necessarily mean risk-free.

Despite these challenges, on-chain lending is changing the crypto landscape and, by extension, economies.

Credit markets run on the cost of time and operations.

Enormous spending on verifying, monitoring, reporting, settling, and enforcing transactions makes traditional credit costly. A large portion of the interest they charge borrowers is avoidable and not necessarily tied to the “time value of money”.

On-chain credit compresses both time and operating costs.

Stablecoins minimise settlement time, smart contracts cut enforcement time, transparent ledgers reduce audit and reporting time, and vaults eliminate user complexity. These cost savings become even more significant when addressing the credit gap in small and medium enterprises.

On-chain credit won’t fill the credit gap overnight, but a lower cost of credit will make verification easier and make access more inclusive. And that could reshape economies.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until then, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Money has a fascinating way of telling stories. It reveals what it thinks of the world by how it moves through global markets.

In a confident market, money behaves like a talent scout. It takes chances, experimenting with a pitch deck, a prototype, or a vision of the future that might seem outlandish today. It shows its belief through the signed cheque for funding.

In a nervous market, however, money acts more like a cautious auditor. It gravitates toward things that are already proven. Think of businesses with healthy cashflows, a user base, distribution or a strong team.

Then, there’s a third scenario, somewhere in between. Here, money starts recycling existing ideas and jumps between hands. We see this happen when business ownership changes through mergers, acquisitions, realignments of business arms, and so on. All these scenarios show money moving, but that doesn’t create new liquidity.

This is why anyone reading into the capital flows and funding numbers should approach them with caution. A large funding number might signal fresh risk-taking, or it could just mean money is changing hands among existing businesses.

The Crypto Fundraising Report 2025 reveals one such figure: $50.6 billion raised across 1,409 rounds in 2025, more than 200% higher than the $15.5 billion raised in 2024. It sounds like a party, but only the breakdown of this figure shows the true picture.

In today’s analysis, I will dive into these numbers and explain what last year’s movement of money tells us about the trajectory of the crypto market.

On to the story,
Prathik

A significant portion of “capital raised” isn’t necessarily new money flowing into the crypto market. The fundraising report breaks total raised into categories: Venture Capital (VC)/Private, Mergers & Acquisitions (M&As), and Public Sales/IPOs.

Over 40% of the capital raised last year came from M&As, compared to only 9% in 2024. Although the total funds raised more than tripled from the previous year, 2025 was more of a year of consolidation for crypto.

The report interprets these numbers as “moderate growth” in VC activity and “explosion” in M&A. However, I believe there’s more to these figures than meets the eye.

Consolidation of businesses in a relatively new industry, such as crypto, could mean maturity and progress. But when paired with capital flight from other routes, it could tell a different story.

In 2025, money was not merely rerouted from funding new projects to acquiring existing ones. While the total funds raised rose by $35 billion year-on-year, M&As and Public Sale/IPOs accounted for $27 billion of that growth.

VC activity still grew by more than 70% year-on-year (YoY) last year, albeit at a declining share in the overall fundraising categories.

While VCs accounted for over 85% of the total fundraising in 2024, that share slipped to 46% in 2025. This, along with how VCs allocated capital across different stages of crypto projects last year, is what concerns new crypto builders and founders. VCs signed far fewer but larger cheques in 2025 to fund existing projects at a later stage in their life cycle than to fund newer, early-stage projects.

The breakdown shows that Pre-Seed, Seed, and Series A funding fell year-on-year, while Series B and Series C funding more than doubled in 2025.

The behaviour is mirrored even when you look at the number of cheques signed across all funding stages.

Both the above charts collectively tell us that “Yes, capital rose. But it rose where uncertainty is lower, and the founder’s pitch is not more about ‘future of money’ but about ‘here are some proven metrics to bet on’.

While this signals tough competition ahead for early-stage founders, it could mark a value-investing opportunity for investors looking to infuse capital into Series A and Series B projects, according to the State of Venture Economy report by Equal Ventures.

That’s because intense competition to raise funds at the Seed and Pre-Seed stages has driven up valuation premiums.

Higher valuation premiums could mean paying for a growth-stage multiple with the risk profile of a Seed-stage project.

This shift prompts rational capital allocators to reallocate their funding to lower-risk opportunities, such as Series A and Series B projects, which demand lower valuation premiums than Seed, Pre-Seed, Series C, and Series D+ projects.

This, along with the explosion of M&As, shows how the risk appetite is shifting across stages. On the one hand, M&As account for over 40% of all “capital raised”, which is not really “new money” in the same way as fresh capital is infused via VC rounds. On the other hand, later-stage funding is being rewarded because it appears risk-free to underwrite, offering greater certainty and a higher potential for better ROI.

When capital concentrates in select avenues, two things happen.

First, decision-making becomes focused. Founders begin preparing to pitch to a smaller audience that tracks similar metrics and shares notes.

Second, the idea of “quality” becomes standardised. In crypto, this could mean wide distribution, regulatory robustness, enterprise readiness, and a business model that doesn’t rely on bull- and bear-market narratives.

This is why I am sceptical about reading the 2025 Crypto Fundraising report’s numbers being purely bullish. Although funding is up, it is important to understand what’s driving the M&A explosion. Although crypto is a relatively new market, the stack has become crowded, making it difficult to scale distribution.

In such times, it becomes a no-brainer for incumbents to buy and scale what’s already working rather than convincing users to adopt a new one. This is evident in the deals that we saw last year.

Let’s take the top three M&A deals listed in the report: Dunamu, DigitalBridge, and Deribit. They total to $17.2 billion, ~81% of the report’s total M&A value.

Coinbase bought Deribit not because it was betting on innovation or experimenting with it. It was a move to capitalise on a flywheel that Deribit had already put in place. Deribit offered a venue with existing liquidity, client habits and an Options and Derivatives product that can double down as a default casino for sophisticated traders once markets mature.

Coinbase read the signs and prepared in advance.

South Korean internet giant Naver had a similar strategy on its mind when it decided to acquire Dunamu, an operator of the country’s largest cryptocurrency exchange, Upbit, in an all-stock deal valued at $10.3 billion.

The deal married a massive consumer distribution platform (an internet-based fintech giant) with a regulated, high-frequency financial product (an exchange).

What does all this mean for 2026?

I expect the capital concentration to persist until we get a clear exit pathway. My only reservation about the consolidation idea that the report lays out is that maturity doesn’t have to mean the death of innovation. If too much capital is invested in rearranging ownership or doubling down on existing ideas, it could lead to stagnation and fewer breakthrough innovations.

If we don’t see successful IPOs and large liquid listings reopening, expect late-stage investors to continue behaving like strict underwriters, while early-stage founders face attention scarcity.

But I don’t believe the Seed stage is dead in crypto.

2025 provides valuable lessons and clarity for early-stage founders. In 2026, they will need to refine their pitch decks to focus on the metrics that matter most to the market. Like how they have a distribution wedge, how they can ship quickly while staying within regulatory compliance, and why their product can survive without relying on bull markets.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until then, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

Every time stablecoins trend, I see people declaring that “stablecoins will kill Visa and Mastercard.” Crypto Twitter and other media outlets talk about traditional finance rails being replaced by new ones. Many nod at this argument, but I find it cute and naive. Aspirational, at best.

This week, I read Artemis’ latest report on stablecoins and card payments. It reinforced the idea that stablecoins are scaling on the existing infrastructure set up by legacy financial cards like Visa and Mastercard, not around them.

The report illustrates how stablecoin payments are scaling rapidly by leveraging distribution and consumer credit, both of which crypto doesn’t naturally have a moat in.

It’s clear from the report that crypto cards are bridging the gap between stablecoin balances and everyday transactions. However, there’s another important story here.

In today’s quantitative analysis, I delve deeper to show why cards, specifically credit cards, offer the biggest opportunity to scale this shift.

On to the story,
Prathik

Retail stablecoin payments have grown from $1.7 billion in January 2023 to $3.5 billion in August 2025. However, this growth hasn’t been driven by merchants accepting stablecoins at checkout. About 75% of this growth came from leveraging existing consumer behaviour - specifically swiping a card.

Crypto card payments grew to over $1.5 billion in August 2025, five times (5x) the volume in August 2023 ($0.28 billion). The average monthly volume shot up from $250 million in early 2023 to over a billion dollars in 2025. During the same period, P2P stablecoin payments remained stagnant at an average monthly rate of $1.5 billion.

The growth of card payments might seem surprising, but they scaled by riding on the two card benefits that users love most: tap-to-pay distribution and rewards.

P2P stablecoin transfer volume stagnated because it is driven by need. People use them to overcome capital constraints, banking downtime, and remittance friction. Once these urgent use cases are addressed, there’s little room for these transfer categories to grow. That’s because making these transfers still requires users to understand how stablecoins and crypto wallets work.

But cards can move the entire spending activity, including shopping for toys and television sets and paying for subscriptions, to stablecoin channels. This doesn’t require people to understand stablecoins. They can tap-to-pay via stablecoins, just as they do with fiat currency.

Distribution Beats Brand

The Artemis report also shows that brand matters less than the infrastructure they integrate into. It shows that both Visa and Mastercard support over 130 crypto card programmes each, yet Visa captures over 90% of on-chain card volume.

That’s because volume follows the network that integrates best with the middle layer of the infrastructure, including issuers, processors, programme managers, and compliance-heavy operations teams that make the card experience frictionless for users.

In this case, Visa partnered early with the middle layer, while Mastercard initially focused more on partnering with exchanges. A relationship with a major issuer can lead to dozens of card programmes and unlock an entire pipeline of launches.

Through Visa and Mastercard, stablecoins can be adopted by millions of users.

Once the network for transferring and processing conversions between stablecoins and fiat has been established, both users and merchants will experience minimal friction when paying and accepting stablecoins via cards.

But why should people wake up one day and just move to stablecoin payments? They probably won’t. How do you fix that, then?

The Rewards Moat

This is where the inherent feature of cards, via subsidies and rewards, comes into play.

Both merchants and users become ready to shift to stablecoin payments when you make it economically irresistible for them to do so.

Think cashback, reward points, lounge access, no-cost EMIs, surcharge waivers, and other small perks. They all add up, making it easier to form a new habit.

Although this turns out to be a net negative for card issuers, they don’t view cards as a single business line.

Crypto card issuers have followed the playbook to acquire customers. Gemini, EtherFi, Coinbase One, and other crypto cards serve much more than merely enabling payments. Through the rewards they offer, they act as an acquisition funnel, bringing in new transacting users and retaining a chunk of them as active users. The issuers then cross-sell other services, such as lending, trading, subscriptions and yield products.

But I see greater potential here to increase stickiness.

The Credit Opportunity

In the majority of today’s crypto cards, users still have to hold either stablecoins or fiat currency in their crypto cards before they spend. Like a debit card. Pre-funding means friction. It requires either the users to hold a new kind of money - stablecoins, or the merchants to be integrated into the stablecoin infrastructure. That’s a big ask when it comes to expecting people to change how they hold, spend, or receive their money on a daily basis.

But what if, instead of expecting users and merchants to transact in stablecoins, settlement is handled via fiat infrastructure? The user can deposit whatever crypto they own into a yield-bearing vault, earn interest on that collateral, and take a fiat loan against those funds. It works like a credit card at checkout – spend now, settle later. Here, the credit limit isn’t set by a bank; instead, it is a secured credit line backed by the crypto parked in the vault, expressed as a loan-to-value (LTV). If the collateral drops, your borrowing capacity could shrink. The remaining transaction will then be settled as any other fiat-based transaction between the user and the merchant. Spend now, settle later.

This credit wrapper (third option in the graphic above) brings back the convenience of credit to the spending journey without requiring either the user or the merchant to hold stablecoins. It feeds on consumer behaviour without expecting them to change their spending habits.

Let me show you how with a personal experience.

When India launched the Unified Payments Interface (UPI) to digitise payments on mobile phones, I was late to the party. It worked great, no doubt. But it didn’t appeal to the credit lover in me. Of course, I still used it occasionally for its convenience or when I didn’t have my wallet. But that changed in 2022 when it started letting me pay via my RuPay credit card. Once it allowed me to link my credit card to any payments app, such as Google Pay or PhonePe, it married UPI’s ease of use with the convenience of paying with credit cards. I could use my credit limit and accumulate reward points even without physically swiping the card.

Numbers show the impact.

As of November 2025, RuPay accounted for 38% of all credit card transactions in India by volume and 8% by value, up from 10% and 1.8%, respectively, a year ago. RuPay credit card transactions through UPI almost doubled to $7.4 billion between April and October 2024, from $3.89 billion between April 2023 and March 2024.

The Artemis report shows how stablecoin growth is becoming less about the stablecoins themselves and more about how they are wrapped and distributed. The report shows numbers on distribution partnerships, incentive budgets, and credit design. But what excites me the most is watching credit-led products that remove the entire crypto settlement process from the user experience.

Stablecoins will likely become an invisible part of the infrastructure, while familiar processes like underwriting, risk controls, and rewards become the user-facing products.

Throughout this process, expect Visa and Mastercard to continue their usual business and support the entire payment infrastructure as they seamlessly move money — crypto or otherwise.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until then, stay curious,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.

I like crypto’s seasonal traditions. Uptober. Recktober. People in the community throw a lot of stats around these events. And humans love trivia, don’t they?

The trend stories and reports around them are even more interesting: ‘this time, the ETF flows are different’; ‘crypto funding has finally matured this year’; ‘BTC is ready for a rally this year’, and many more. Recently, while going through one such report, ‘State of DeFi 2025’, some charts on how crypto protocols have been generating “serious revenue” caught my attention.

These charts show the dominant protocols across crypto that generated the most revenue during the year. They stand as testimony to one fact many in the industry have discussed over the last year: crypto has finally begun to find revenue sexy. But what’s shaping this revenue?

Implicit in these charts was also another, lesser-known story to chase. Where are these fees going?

Last week, I dug into DefiLlama’s fee and revenue data (revenue being fees retained after paying liquidity providers and suppliers) to find answers.

In today’s quantitative analysis, I attempt to add nuance to these numbers and show how and where money flows in crypto.

Onto the story,
Prathik

Crypto protocols generated over $16 billion in revenue last year, more than double the approximately $8 billion in 2024.

Value capture expanded across the crypto industry, with many new categories emerging in decentralised finance (DeFi) over the last 12 months, such as decentralised exchanges (DEXs), token launchpads, and perpetual DEXs.

Yet the profit centres that generated the highest revenue remained concentrated in older categories—most notably stablecoin issuers.

The top two stablecoin issuers, Tether and Circle, accounted for over 60% of all revenue generated in crypto throughout the year. In 2025, their share dipped only marginally to 60% from about 65% the previous year.

But what the perpetual DEXs— barely present in 2024, achieved in 2025, cannot be underestimated. Hyperliquid, EdgeX, Lighter, and Axiom collectively accounted for 7-8% of the industry’s total revenue, far more than the combined share of protocols in established DeFi categories such as lending, staking, bridges, and DEX aggregators.

So what could drive revenue in 2026? I find the answer in the same three factors that influenced revenue concentration in crypto last year: carry, execution, and distribution.

The carry trade means that whoever holds and moves money earns a return on holding and moving that money.

Stablecoin issuers’ revenue models are both structural and fragile. Structural, because they scale with supply and circulation. Each digital dollar they hold is backed by Treasuries, which earn interest. Fragile, because the model depends on a macroeconomic variable over which issuers have little control: the Fed’s interest rate. And the easing phase has just begun. As rates fall further this year, so will the revenue dominance of stablecoin issuers.

Then comes the execution layer. This is where DeFi protocols built perp DEXs, 2025’s most successful DeFi category.

The simplest way to understand how perp DEXs grabbed meaningful shares so quickly is to look at how they help their users execute actions. They built venues that helped users get in and out of risk on demand, with minimal friction. Even when the markets aren’t moving much, someone can still hedge, have some leverage, score arbitrage, rotate funds or simply research and place positions for the future.

They allow users to execute continuous, high-frequency trades without the inconvenience of moving the underlying asset, unlike spot DEXs.

Although the execution part sounds simple and is lightning fast, there’s so much more than what meets the eye. These perp DEXs must build a robust trading interface that doesn’t crack under load, host a matching and liquidation system that can hold the ground amid chaos, and provide sufficient liquidity depth to keep traders busy. In perpetual DEXs, liquidity is the secret sauce. Whoever offers constant and ample liquidity attracts the highest trading activity.

In 2025, Hyperliquid dominated the perp DEX space by offering ample liquidity enabled by the largest number of market makers on the platform. As a result, Hyperliquid was the most dominant perp dex in terms of fee collection in 10 out of the 12 months last year.

Ironically, even these DeFi category perp DEXs clicked because they didn’t expect traders to understand blockchain and smart contracts, and instead functioned like familiar, traditional exchanges.

Once all the above are taken care of, exchanges generate revenue on autopilot by charging marginal fees on traders’ high-frequency, high-volume trading activity. And this goes on even when spot prices are moving sideways, simply because of the range of options available to traders on the platforms.

This is precisely why I find perps DEXs, despite having single-digit revenue dominance last year, to be the only category that could even remotely challenge stablecoin issuers’ dominance.

The third factor, distribution, drives incremental revenue in crypto projects, such as token issuance infrastructure. Think pump.fun and LetsBonk. It’s not very different from what we see in Web2 companies. Although Airbnb and Amazon don’t own any of their inventory, their massive distribution play has helped them transcend their roles as aggregators and reduce the marginal cost of adding more supply.

Crypto issuance infrastructure also doesn’t own the crypto assets, such as memecoins, tokens and micro communities, created via its platform. Yet by making the user journey frictionless, automating the listing process, providing ample liquidity, and simplifying trading, it can become the default venue for people looking to create crypto assets.

In 2026, two questions may decide the trajectory of these revenue drivers: Will the stablecoin share of industry revenue slip from the 60% zone as rate cuts bite into the carry trade? Will perp venues push beyond their 7-8% foothold as execution consolidates?

Turning Revenue into Ownership

All three factors – carry, execution, and distribution – show how crypto revenue arises. But that’s just one part of the story. It is equally, if not more, important to understand what share of the gross fee is distributed to tokenholders before the net revenue is retained by the protocols.

Value transfer via token buybacks, token burns, and fee-sharing signifies that a token is an economic claim on ownership, rather than merely a governance badge.

In 2025, users across DeFi and other protocols paid roughly $30.3 billion in fees. Of that, $17.6 billion was retained by protocols as revenue after paying liquidity providers and suppliers. About $3.36 billion of total revenue was returned to tokenholders through staking rewards, fee sharing, buybacks, and token burns.

That translates to 58% of fees becoming protocol revenue, and about 19% of revenue being captured by tokenholders.

This is a significant shift from the last cycle. We saw a growing share of protocols that attempted to make the token behave like a claim on operating performance. This gave investors a tangible incentive to stay invested and go long on projects they believed in.

I wrote about how Hyperliquid and pump.fun did this last year, here: Burn, Baby, Burn.

The crypto world is far from perfect, and most protocols still distribute nothing to token holders. But when you zoom out, you see the needle has moved a fair bit, signalling that things are changing.

The holder revenue as a percentage of the total revenue earned by the protocols has ticked up consistently through the last year. It surpassed the earlier record high of 9.09% early last year and even crossed 18%, at its peak in August 2025.

The impact of this is felt in token trades. If I am holding a token that never rewards me, my trades are based on the media narrative around it. But when I hold a token that pays me, whether through buybacks or fee sharing, I start treating it as a yield-bearing asset. Although it might not be as safe and reliable, it still changes how the market prices the token. Its valuation gets pulled a bit closer to fundamentals and farther from media narratives.

When investors look back at 2025 to understand where crypto revenue will flow in 2026, they will heavily factor in incentives. The teams that prioritised value transfer also stood out from the rest last year.

Hyperliquid built a culture around routing about 90% of its revenue back to its users via its Hyperliquid Assistance Fund.

Among token launchpads, pump.fun reinforced the idea of rewarding its community for activity generated on the platform. It has offset 18.6% of the circulating supply of its native token, $PUMP, via daily buybacks.

In 2026, expect “value transfer” to stop being a niche choice and become table stakes for any protocol that wants its token to trade on fundamentals. Last year trained the market to separate protocol revenue from tokenholder value. Once tokenholders see a token behave like an ownership claim, going back to the alternative starts to look irrational.

I don’t think the ‘State of DeFi 2025’ report tells us anything fundamentally new about crypto discovering revenue. That has been a trending observation for the past few months. What the report does is throw light on the numbers, which, when probed further, reveal the recipe most likely to succeed for anyone looking to generate revenue in crypto.

By examining the trend of revenue dominance among protocols, the report makes clear that whoever controls the pipes—carry, execution, and distribution—stands to earn the most.

In 2026, I expect more projects to start converting fees into durable, disciplined payouts for their tokenholders, especially as the rate-cut era makes the carry trade less attractive.

That’s it for this week’s quantitative analysis. I will be back with the next one.

Until then, stay curious,
Prathik

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Hello

Hope you are having a great holiday with your loved ones and spending some time relaxing, reflecting and recharging.

We’re taking a brief pause from publishing new pieces this week. Instead, we are revisiting a handful of stories from 2025, ones that still hold up or feel more interesting now than when we first wrote them. With each recap, we’re adding a little colour on what’s changed since, and what’s worth carrying into the year ahead.

Today, we are rewinding to why prediction markets didn’t fade after the 2024 election cycle and found a more durable use case.

Onto the story,
Prathik

When we wrote about prediction markets more than a couple of months back, the volume and other metrics were shooting up. The peak seemed to be approaching, and the volume growth looked set to plateau soon.

Nobody knew for sure, though. The trajectory of prediction markets surprised most of the world after the euphoria died down following the 2024 US Presidential elections.

Political volumes had peaked, traders were rotating out, and there was a concern that the category had lived through its “once-every-four-years” moment. If elections were the main engine, relevance would always be cyclical.

In our story, we argued that elections won’t be the endgame.

Read: The Sports Engine 🎰

Sports, as a category, offered what politics couldn’t. The frequency, repetition, and muscle memory ensured that prediction markets fed on something that was not cyclical, like elections. Prediction markets capitalised on humans’ innate desire to speculate on everything and allowed them to monetise those speculations.

The user data now clearly reflects that shift.

On Polymarket, the share of daily users who have never interacted with US election markets has climbed steadily and recently touched ~40%, the highest level on record.

Volume followed users.

Both Kalshi and Polymarket have seen their spot volume touch record highs in October and November. Together, the two largest prediction platforms did nearly $10 billion in monthly volume, their strongest showing yet.

This surge isn’t slowing down. December volumes are already tracking higher as we speak.

What’s changed since we wrote The Sports Engine is not just where the activity is coming from, but how visible it has become.

Polymarket briefly topped the App Store’s sports category in early December. Kalshi has moved from being a niche CFTC-regulated exchange to powering prediction markets inside mainstream platforms. And with Coinbase integrating prediction markets directly into its app, monetising speculation is now as easy as a tap of a button, alongside trading, payments, or staking.

If 2025 showed that prediction markets could retain users, the next phase will be about distribution. As exchanges and consumer platforms turn “monetised opinions” into a routine feature, prediction markets may stop feeling like bets reserved for a sophisticated crop of users.

That’s it for today’s recap.

Wish you a happy holiday week,
Prathik

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 200,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.