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“There are only two ways to make money in business: bundling and unbundling.”
— Jim Barksdale, former CEO of Netscape
Stablecoins might unbundle banking (and then re-bundle it)
Bundling and unbundling aren’t the only ways to make money, of course — you can also invent something new or do an old thing more efficiently, for example.
But Jim Barksdale’s comment — made spontaneously to close a roadshow meeting for the Netscape IPO — became a dictum in tech circles because it explains a lot of things about the business of technology.
Much of the internet revolution, for example, can be framed as unbundling.
The internet caused newspapers to be unbundled into Craigslist, search engines and blog posts.
Fiber optics caused cable TV to be unbundled into streaming services.
Barksdale’s Netscape might be said to have unbundled the internet, letting users bypass bundled services like AOL and CompuServe, including email, news, chat and curated web access.
Sometimes, these unbundled services then get rebundled.
It used to be that to listen to a single song we liked, we had to buy 12 of them bundled into an album.
With the advent of the internet, we could buy each song individually as MP3 files (or download them illegally for free).
Now, we typically buy a bundle of millions of songs from Apple Music or Spotify.
Something similar may now be happening with crypto and banking.
Stablecoins are often described as tokenized dollars or money market funds issued by a crypto version of narrow banks.
But the best way to understand their potential significance might be as an attempt to unbundle banking.
Banks bundle all kinds of financial services: deposits, custody, payments, credit cards, lending, asset management, investment banking — most of which you are probably not interested in when you open a bank account.
Stablecoins, by contrast, offer the two services you are definitely interested in — the storage and transfer of money — and nothing else.
This might catch on because doing one thing well and leaving everything else out is often what disruptive technologies do best.
Stablecoins are a disruptive technology because they turn money into software — composable, portable and always on.
This is likely to cause problems for the legacy banks that are dependent on deposits as a cheap source of funding and whose offerings are encumbered by legacy systems and compliance regulations.
Stablecoins could take business from them by being a better kind of money offered in a better kind of checking account.
But that doesn’t mean that issuing them will be a better kind of business.
The risk disclosure section of Circle’s recent S1 filing, for example, is long and frightening: Competition, it warns, is “intense and increasing,” its profitability is dependent on interest rates (and therefore out of its control), CBDCs could “eliminate or reduce the need” for stablecoins, and regulation remains highly uncertain.
The S-1 also makes clear that it’s more expensive to issue stablecoins than Tether’s oft-cited results might have you think: Circle incurred $482 million of operating expenses in 2024 and just over $1 billion of “distribution, transaction and other costs.”
But you don’t have to read a 225-page S1 to be concerned — you only have to read this morning’s Bloomberg headline that “PayPal Aims To Boost Stablecoin Use By Offering 3.7% on Balances.”
That 3.7% is only about 60 bps below the fed funds rate, which isn’t much of a gross margin for issuers to work with.
If that becomes the norm, how will they make money from stablecoins?
Barksdale’s dictum suggests that stablecoins might have to become a loss leader for other, more profitable services.
As Circle’s S-1 implies, stablecoins seem likely to be issued by payments companies, banks and crypto exchanges as a way to attract or retain customers, irrespective of profitability.
To stay competitive, stablecoin issuers might need to offer the same core services — payments, banking and exchanges — as the companies they’re disrupting.
In other words: rebundle!
There is precedent for this.
As Barksdale’s Netscape colleague Marc Andreessen puts it, startups that disrupt incumbents by unbundling their services “often end up reforming themselves into a version of the company they took down.”
This has been a recurring pattern: As startups grow, the natural strategy is to “stay focused on your core and then add things to it,” Barksdale explains.
“And before long, you become a big bundle again.”
A current example is Robinhood, which will soon offer checking and savings accounts, payments and cash withdrawals in addition to its core business of brokerage.
It feels like only a matter of time until it adds a stablecoin to that offering (as it has reportedly considered doing).
Robinhood would probably treat it as a loss leader, if so, and that could threaten stablecoin issuers’ already thin margins.
To stay profitable, stablecoin issuers might then have to rebundle some of the banking services they left behind.
They might even be required to rebundle.
The risk section of Circle’s S-1 filing includes a warning that “legislation requiring stablecoin issuers to be banks or to be affiliated with banks could materially affect our business.”
That may be why Circle and others are reportedly planning to apply for bank charters and licenses, despite the considerable cost that entails.
But could all this be an upside risk, too?
Bundling, after all, is one of only two ways to make money.
