Stablecoin Ascendancy Challenges Native Token Value Proposition in Crypto Markets

Executive Summary

The crypto market is experiencing a significant shift as free-flowing stablecoins, exemplified by USDC, increasingly serve as fundamental infrastructure. This development is challenging the traditional value proposition and utility of native project tokens, especially in decentralized applications such as prediction markets. The ascendancy of stablecoins enables more reliable financial activities by mitigating foreign exchange (FX) risk, thereby altering tokenomics models and potentially reducing the appeal of non-governance or non-infrastructure tokens.

The Event in Detail

The role of stablecoins in facilitating robust decentralized financial activities is becoming more pronounced, particularly in prediction markets. Platforms like Polymarket, built on the Polygon network, utilize USDC for all transactions, allowing users to bet on diverse events without the volatility associated with native cryptocurrencies. This design choice addresses a critical issue encountered by earlier platforms like Augur, which relied on its native REP token. As noted by experts, the absence of a stable settlement currency in Augur created a "noisy" environment where participants could "lose money" even when correctly predicting an outcome due to ETH price fluctuations during the bet.

Polymarket has demonstrated significant growth, recording approximately $400 million in 28-day volume, contrasting with Augur's initial challenges. The use of USDC, a stablecoin pegged to the United States dollar, eliminates the FX risk that historically plagued early decentralized prediction markets, making the platform more accessible and appealing to a broader user base, from casual bettors to data-driven traders.

Market Implications

The growing reliance on stablecoins as the unit of account within the crypto economy fundamentally alters the value proposition for traditional "utility tokens." Historically, these tokens served as a payment bridge within applications, contributing to a "token flywheel" model where staking and rewards drove token value and user adoption. However, market analysts suggest that stablecoins have rendered these utility tokens "well and truly redundant" for payment functions.

This shift implies that the "token becomes the product," primarily used for user rewards, which may cause the "flywheel quickly [to run] out of steam" in a stablecoin-dominated economy. The debate surrounding governance tokens as a fallback value proposition is ongoing, with many finding it "not overly compelling." This re-evaluation of tokenomics could lead to increased scrutiny for existing projects and a move towards stablecoin-centric ecosystem designs for new ventures, potentially reducing the speculative appeal of tokens without strong governance or infrastructure utility.

Expert Commentary

Industry observers emphasize the enabling role of stablecoins in the broader crypto ecosystem. Santiago Roel Santos highlighted the critical difference, stating, "My main diagnosis is that you didn't have a stablecoin. And if you can't settle the bet on a stablecoin, it's just really noisy." Rob Hadick further expanded on this, asserting that "Stablecoins are the enabler of other types of financial markets and financial ecosystems onchain." He underscored that without stablecoins, it is significantly harder to "do financial activity in any real way over any long period of time onchain" due to FX risk.

These expert opinions suggest that the widespread adoption of stablecoins is not merely a preference but a foundational requirement for stable and scalable financial activity in the decentralized space.

Broader Context

The evolving landscape driven by stablecoins aligns with broader trends in Web3 venture funding and blockchain infrastructure development. While public token sales saw an 83% decline in value, private token sales remained robust, raising $410 million across only 15 deals in 2Q25, with a median round size of $29.3 million. This indicates a market shift towards strategic positioning and robust infrastructure plays, with capital concentrating on projects offering clear network effects and long-term value creation rather than speculative utility tokens.

Upcoming blockchain updates, such as Ethereum's Fusaka upgrade, Solana's Alpenglow consensus layer, and Avalanche's HyperSDK production rollout, continue to focus on enhancing scalability, reducing fees, and improving cross-chain messaging. Notably, Avalanche's Evergreen Subnets are being utilized for institutional DeFi pilots, incorporating KYC layers and USDC integrations. These developments underscore a strategic industry-wide move towards more stable, scalable, and institution-friendly blockchain infrastructure, where stablecoins play an integral role in fostering financial activity and ecosystem growth.)