Why VC firm Dragonfly says the bulk of investments is in payments and stablecoins

Key Concepts:

• Stablecoins: Cryptocurrencies designed to maintain a stable value relative to a reference asset (e.g., USD).
• Genius Act: A hypothetical stablecoin bill that has recently become law.
• Cross-border Payments: Payments made between parties in different countries.
• Institutional Adoption: Increased use of cryptocurrencies and blockchain technology by large financial institutions and corporations.
• Digital Asset Treasuries (DATs): Companies or funds that hold and manage digital assets, often with the goal of generating yield or providing exposure to the crypto market.
• Prediction Markets: Exchanges where users can bet on the outcome of future events.
• Tokenization: The process of representing real-world assets or rights on a blockchain.
• Real World Assets (RWAs): Tangible or intangible assets that exist in the physical world and are represented on a blockchain.
• Emerging Markets: Developing countries with rapidly growing economies.
• Remittance: Money sent by migrants to their families in their home countries.

Stablecoin Investment Trends and the Genius Act

• Dominance of Stablecoin and Payment Investments: Dragonfly's analysis reveals that investments in payment and stablecoin companies constitute the majority of their investments, and this trend is accelerating.
• Impact of the Genius Act: The passage of the Genius Act is cited as a significant factor driving the increased interest in stablecoins.
• Institutional Adoption as a Catalyst: The speaker attributes the trend to two factors: the Genius Act and the growing institutional adoption of stablecoins.
• Cross-border Payments Growth: The use of stablecoins for cross-border payments has increased dramatically, from near zero to over $100 billion in the past year, with month-over-month growth rates of 30-40%.
• Stripe's Acquisitions: Stripe's acquisitions, such as Bridge, are mentioned as examples of institutional players entering the stablecoin space.
• Ripple's Involvement: Ripple's activities and acquisition of Hidden Road are also noted as part of this trend.

Institutional Interest and Use Cases

• Fortune 500 RFPs: At least 12 Fortune 500 companies have issued Requests for Proposals (RFPs) seeking to integrate stablecoins into their treasury management solutions.
• Cost Savings and Revenue Generation: Companies recognize that using stablecoins can reduce costs and generate new revenue streams.
• Rain's On-Chain Credit Card: The speaker highlights Rain, a company that launched a credit card using an entirely on-chain workflow with stablecoins, settling directly with Visa without involving traditional banks. Rain raised a $58 million Series B.

Data on Stablecoin and Payment Deals

• Deal Volume: The number of stablecoin and payment deals increased from 156 in 2021 to 226 in 2024. In the current year, there have been 115 deals, representing nearly 8% of all deals.
• Capital Raised: Stablecoin and payment deals account for approximately 14% of the total capital raised this year.
• Significance of the Data: The speaker is not surprised by these figures, as they reflect the growing adoption of stablecoins in enterprises and institutions.
• Series A and B Rounds: Companies in this space are increasingly raising Series A and B rounds, indicating product-market fit and maturity.
• Examples of Companies: Agora (raised a $50 million Series A), M Zero, and Plasma are mentioned as examples of stablecoin infrastructure companies raising significant capital.

Key Use Cases for Stablecoins

• B2B Cross-border Payments: B2B cross-border payments are identified as a rapidly growing use case for stablecoins.
• Artemis Report: A report by Artemis, tracking 30 companies, showed that cross-border B2B payments in stablecoins doubled from May to August, reaching approximately $6 billion annually for that subset.
• Estimated Total Volume: Based on the Artemis data, the speaker estimates the total monthly volume of cross-border B2B payments in stablecoins to be in the range of $200 billion annually.
• Emerging Market Usage: Stablecoin-backed cards and neobanks are gaining traction in emerging markets, allowing users to spend US dollar-denominated stablecoins.
• Remittance: Stablecoins are being used for remittances, with Artemis data indicating that up to 10% of all cross-border peer-to-peer remittances between the US and India, and 8% between the US and Mexico, are happening via stablecoin rails.

Other Emerging Crypto VC Trends

• Prediction Markets: Prediction markets are another area of significant interest for VCs.
• Poly Market: Poly Market is cited as a successful example, experiencing substantial growth and handling over a billion dollars in monthly volume internationally.
• Financialization of Everything: Prediction markets are seen as a way for people to engage with the "financialization of everything" and speculate on everyday events.
• Tokenization: There is growing interest in the tokenization of equities, real-world assets (RWAs), and credit.
• Blockchain for Value Transfer: Blockchains are viewed as a more efficient way to move value and assets compared to traditional financial infrastructure.

Digital Asset Treasuries (DATs)

• Increased Interest in DATs: There has been a recent surge in interest and investment in digital asset treasury companies.
• Michael Sailor and MicroStrategy: Michael Sailor and MicroStrategy are mentioned as early adopters of digital asset treasury strategies.
• Expansion to Other Assets: Interest has expanded beyond Bitcoin to include Ethereum, Solana, and other assets.
• Institutional Investor Demand: Institutional investors are seeking exposure to real-world assets and activities on blockchains through DATs.
• Yield-Bearing Activities: DATs offer opportunities for yield-bearing activities and other on-chain activities in a familiar equity-like product.
• All-Time High Interest: Interest in DATs reached an all-time high in September.

Synthesis/Conclusion:

The conversation highlights the increasing adoption of stablecoins, driven by regulatory developments like the Genius Act and growing institutional interest. This adoption is fueling investment in stablecoin infrastructure and related use cases, particularly B2B cross-border payments, emerging market applications, and remittances. Beyond stablecoins, prediction markets and tokenization are also attracting significant VC attention. Finally, digital asset treasuries are emerging as a way for institutional investors to gain exposure to the crypto market and participate in on-chain activities. The overall trend indicates a maturation of the crypto space, with real-world applications and institutional involvement driving growth and investment.