When the Tech Becomes Commodity, Distribution Is All You've Got
Why start-ups that focus on partnerships over IP win
There’s a line that gets repeated in business circles so often it’s almost lost its meaning: “your margin is my opportunity.” But every once in a while you watch it play out in real time, and the mechanics of it reveal something worth paying attention to.
Tether posted a tweet about a year ago bragging about their 99% profit margin. Since then, there’s been a lot of blood in the water. And the feeding frenzy that followed tells you something important, not just about stablecoins, but about how infrastructure markets work once the technology layer gets commoditised.
The Stablecoin Stack Has No Technological Moat
Here’s what most people outside the stablecoin world don’t fully appreciate: the core technology behind issuing a stablecoin is not proprietary. It’s not even particularly complex. You hold treasury bills or other yield-generating assets in the real world, you issue tokens backed by those assets, and you collect the yield. Right now that’s about three to three and a half percent.
Circle and Tether keep that yield. When you hold USDC or USDT, it’s Circle and Tether that own the treasuries. You get nothing. That’s the 99% margin.
And the reason new entrants are now flooding in is that the actual mechanics of issuance have been unbundled. There are white-label stablecoin issuers. There are on-chain protocols where issuers can plug in to support liquidity. The entire stack is available off the shelf.
So if the technology isn’t the moat, what is?
Distribution and Liquidity Are the Whole Game
USDC and Tether dominate for two reasons, and neither of them is technical superiority.
The first is distribution. People use them because other people use them. There’s a self-reinforcing quality to it. The more USDC that’s held across protocols, the more new protocols default to supporting USDC, which brings in more holders. It compounds.
The second is liquidity. USDC and Tether are the cheapest to swap in and out of. That’s not because of some brilliant engineering choice at Circle. It’s because they have the deepest liquidity pools, which again is a function of distribution, not technology.
This creates a pattern that shows up across every layer of crypto infrastructure, and honestly across most technology markets once they mature: the technology becomes table stakes, and the competitive advantage migrates entirely to whoever controls where the users already are.
The Perp DEX Insight
This gets concrete fast when you look at who actually holds stablecoins on any given chain.
In most ecosystems, a small number of partners hold the vast majority of stablecoin TVL. In many cases, it’s the perpetual exchanges. Perp DEXes are quietly massive. People don’t always realize this, but something like 30% of all perp DEX volume flows through platforms that are either built on or forked from certain L2 architectures. These exchanges hold enormous quantities of USDC as collateral.
If you’re launching an ecosystem stablecoin, those are your distribution partners. Not retail users scrolling through DeFi dashboards looking for the best yield. The perp DEXes.
And this is where the strategy gets interesting. Right now, nobody is paying these exchanges for the privilege of being their default stablecoin. Circle certainly isn’t sharing yield with them. So there’s a straightforward economic proposition: share the yield with the distribution partners, and they’ll switch.
Early Money Beats Future Money
The obvious counter-argument is durability. If you convince a perp DEX to switch to your stablecoin by sharing yield, what stops someone else from coming along six months later and offering to share more?
Nothing, unless you’ve locked them in.
And this is where timing matters enormously. Early money for any company is more important than future money. If you can move fast and start sharing revenue with partners who are currently getting zero from Circle, the value of that early cash flow creates a real switching cost. Pair it with a two-year contract, and you’ve bought yourself a window. Two years isn’t an absurd commitment. Nobody wants to be swapping out their stablecoin infrastructure every few months.
The window matters because in that time, the same self-reinforcing dynamics that made USDC dominant can start working in your favor. Liquidity deepens. Integrations harden. Swapping costs come down. The flywheel, if it catches at all, catches during the locked-in period.
The Broader Pattern
This isn’t really a stablecoin story. It’s a pattern that repeats across every layer of crypto infrastructure once the initial technology differentiation fades.
Bridges, oracles, data availability layers, execution environments. In the early days, each of these has genuine technical differentiation. Novel cryptographic approaches, different trust assumptions, real architectural tradeoffs. But over time, the approaches converge. Open-source codebases get forked. White-label solutions emerge. And the competitive landscape shifts from “who built the best technology” to “who locked in the most distribution.”
The implications for how ecosystems allocate resources are significant. The instinct in most crypto foundations and protocol teams is to keep investing in technical superiority. Better throughput, lower fees, novel privacy features. And that work matters, but not because it creates a lasting moat. It matters because it gives you a temporary window of credibility to go lock in distribution before someone else does.
Privacy capabilities, for example, are genuinely valuable for institutional payments and corporate treasuries. But they won’t stay unique for long. The question isn’t whether you can build it. The question is whether you can get the right partners committed before three other chains ship the same feature.
What This Means in Practice
The natural instinct for most ecosystem teams is to spend 80% of their energy on the technology and 20% on distribution. The teams that tend to win do the opposite. Not because the technology doesn’t matter, but because in a commoditized market, the technology is necessary but not sufficient. It gets you to the starting line. Distribution is the race.
The specific playbook looks something like this: identify the small number of partners who control the majority of the relevant asset flow. Figure out what they’re currently getting from incumbent providers (usually nothing, or close to it). Offer them a meaningful share of the economics. Lock them in contractually while the early-mover advantage still exists. Then use the locked-in period to build the liquidity and network effects that make switching painful even after the contract expires.
It’s not a whitepaper-worthy technical breakthrough. But it’s how markets actually get won once the technology layer flattens out.
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