You Can't Charge Fees on Stablecoins

When someone sends $10 in stablecoins, they expect the recipient to receive $10. This simple expectation breaks the most intuitive business model in payments: charging a fee on volume.

Credit cards trained merchants to accept interchange. Wire transfers trained businesses to accept fees. But stablecoins feel like cash. Users see a visible fee on a stablecoin transfer and ask why they're paying for something that should be free. And they're not wrong. Stablecoins run on open source rails where improvements in blockchain infrastructure have made transfers nearly costless to execute. A consumer front end that adds a visible fee to every stablecoin payment is charging for something that costs almost nothing. That's hard to defend when a competitor can offer the same service without the fee.

This expectation cascades through the entire stack. Applications can't charge users. Middleware can't charge applications. Everyone who was hoping to build a payments-style business on stablecoin volume is finding that the economics don't work. The result is a race to the bottom on fees and a scramble toward adjacent business models.

Applications: Stablecoins as Top of Funnel

For applications, stablecoins are a hook, not a revenue driver. Rather than trying to make money directly on the stablecoin balance or transfers, applications use stablecoins to pull dollars onto the platform and monetize elsewhere. Applications can also fight for a share of the yield from issuers, which I covered in a previous article.

Coinbase is an instructive example. It offers near-free stablecoin transfers and increasingly passes a meaningful share of stablecoin yield back to users. In doing so, Coinbase gives up margin it could have captured. The trade is that cheap transfers and yield makes Coinbase an attractive place to hold stablecoins, and once those dollars are on platform, Coinbase can monetize through trading, lending, and other high-margin products.

RedotPay takes a different approach. It positions itself as a new kind of fintech built on stablecoin rails. Transfers are near-free, users earn interest on their stablecoin balances, and RedotPay makes its money from card issuance and FX. It collects interchange fees when users spend against their stablecoin balance with a card, and it earns spreads on conversions between stablecoins and foreign currencies.

Aave built an entire lending and borrowing protocol where stablecoins are a core asset. Users don't pay to transfer stablecoins in and out. They pay to borrow against them or earn yield by lending them.

The pattern is consistent. Stablecoins are the hook that gets users to custody value in a specific venue. The real revenue sits in the adjacent services built on top.

Middleware: Vertical Integration or Get Squeezed

The same pressure hits middleware, but the options are narrower.

Between issuers at the bottom of the stack and applications at the top sit interop providers, blockchains, and on and off ramps. These actors don't own the user directly and don't own the reserves. If they try to charge volume fees, they face the same problem: applications can swap them out for a cheaper competitor or rebuild the functionality in-house. Middleware that charges fees on stablecoin volume is a vendor waiting to get squeezed. I have written about this pattern before.

The escape route is vertical integration into adjacent services.

Paxos recognized this early. Instead of just offering interop, it vertically integrated by offering issuance as a service and deep stable-to-stable liquidity. Now it powers white-labeled stablecoins like PayPal’s PYUSD. That's a much stickier relationship than a thin routing layer.

On and off ramps face similar pressure, but the economics depend on which currencies you bridge. If the corridor is USD to a dollar stablecoin, you are changing wrappers around the same unit. The service is close to a commodity and issuers increasingly offer mint and redeem for free.

But when you move between a fragile local currency and dollar stablecoins, the picture changes. Getting access to stablecoins becomes a hair-on-fire problem. Users are often trying to escape local hyperinflation or avoid expensive correspondent banking. In that context, the ramp is effectively an FX marketplace, not a payment processor. It provides access to dollars in places where local infrastructure is weak or expensive. To do this well, it must assemble liquidity on both sides, handle compliance and licensing, build local distribution, and manage currency and payment risk.

Yellow Card is a good example. They spent years building on and off ramps between long-tail African currencies and dollar stablecoins. They've become a core rail for moving money in and out of the continent, including for larger brands like MoneyGram, PayPal, and Western Union.

The Post Fee Playbook

Crypto-native companies are starting to understand that stablecoins commoditize payments. As a result, they're building different businesses. They're fighting for yield, integrating vertically, and monetizing adjacent services.

Many traditional payments companies have not realized this yet. They will face an innovator's dilemma: their entire business depends on fee-based models that stablecoins are making obsolete. The user expectation that $10 equals $10 is not going away. If anything, it will only get stronger as stablecoin infrastructure improves.

We're excited by businesses that recognize where payments are headed and are building accordingly. If you're working on a stablecoin business model that goes beyond volume fees, we'd love to chat.

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Appendix: Why Blockchains Also Struggle to Charge Fees on Stablecoin Volume

The $10 equals $10 expectation doesn't just affect applications and middleware. It reaches all the way down to blockchains.

It is tempting to assume that, given the large share of onchain activity driven by stablecoins, chains must be major winners of the stablecoin boom. The reality is more nuanced. Chains earn revenue via transaction fees, and stablecoin transfers are not especially profitable.

Why? Stablecoin transfers are logically simple. They debit the sender and credit the receiver. Relative to complex operations like depositing into a lending protocol, these transactions touch very little data and are cheap to execute. Transfer fees also do not scale with transfer size. Chains charge for computational and storage resources consumed, not for notional moved. A $1 transfer and a $10M transfer pay a chain roughly the same.

Chains make the most money processing contentious state, i.e., when many actors want to touch the same piece of data simultaneously and bid for priority. A classic example is everyone trying to trade against the same ETH-USDC pool after a price move. Users pay up to get their trade executed first. Pure transfers of stablecoins between unrelated accounts are non-contentious. They do not trigger bidding wars for block space and are therefore a weak fee driver.

Compounding this is competition at the chain layer. Users and developers can choose from a growing number of settlement environments, many explicitly designed to make simple transfers extremely cheap. Over time, improvements in scalability and competition between chains push the marginal cost of basic state updates down.

This does not mean stablecoins are unimportant for chain revenue. Stablecoins are the core money of DeFi, serving as the base pair on DEXs, the collateral and borrow asset in lending markets, and the unit of account in many structured products. DeFi activity is exactly the kind of contentious state that drives meaningful fees for chains. Notice, this is the same pattern from the rest of the stack.