Binance (CRYPTO: BNB) founder Changpeng Zhao told ARK Invest CEO Cathie Wood that stablecoins should generate interest for users—yet Tether (CRYPTO: USDT) won’t do that anytime soon, because it built dominance without offering yields.

Tether Leaving Room For Competition

Zhao explained that Tether moved early and built dominance without paying users. Newer stablecoins are now offering yields, creating an opening for competition.

“Stablecoins should generate interest for the users,” Zhao stated during the ARK Invest podcast. 

“I don’t think Tether is going to do that anytime soon. They’ve achieved dominant position without doing that because they were the early mover,” he added.

Businesses will find ways to reward users regardless of restrictions.

Activity-based rewards, different account types, staking options, and other mechanisms allow companies to pass value to users even if direct interest payments face regulatory hurdles.

Circle And USD1 Gaining Ground

Tether maintains a dominant position, but Circle’s USDC (CRYPTO: USDC) is growing and USD1 is expanding quickly. Meanwhile, stablecoins outside the U.S. are also gaining traction rapidly.

“Any business that takes care of their users more than others will win,” Zhao said. “Either low fees or you give them rewards. Any business that gives users better returns has a big advantage.”

Heavy competition is coming. If the U.S. doesn’t allow yield-bearing stablecoins, international stablecoins may win in the short term.

Banks Fear Deposit Flight To Stablecoins

Wood asked whether bank CEOs are fear-mongering about bank runs from deposits to stablecoins if rewards become allowed. 

Zhao acknowledged some validity but highlighted a crucial difference.

Banks use fractional reserves, giving away 99% of deposits to invest elsewhere. They may not get that money back in time, making bank runs terrifying. 

Meanwhile, crypto exchanges and stablecoin issuers hold one-to-one reserves and get audited.

“My personal view is we should not break that for crypto,” Zhao stated. 

“That’s a good thing to have in crypto that doesn’t exist in traditional financial industries. Stablecoin issuers should maintain one-to-one peg and 100% reserve,” he added.

Zhao encouraged companies to pass generated yield to users. However, if laws prohibit it in certain countries, stablecoins issued elsewhere will offer yields and attract more global users.

U.S. Dollar Stablecoins Drive Treasury Demand

U.S. dollar stablecoins typically use U.S. Treasuries, creating an indirect way to sell U.S. bonds to the global crypto population. This increases U.S. dollar dominance globally.

Many countries want to issue their own currency-backed stablecoins. 

Selling bonds through stablecoins offers an indirect but effective way to raise money and increase investment into countries.

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