How much does it cost to issue a stablecoin?

Issuing stablecoins is not an easy task. In addition to technology, enterprises also need to invest tens of millions of dollars in compliance and maintenance such as financial licenses, fund custody, reserve management and system security, which is an uphill battle with strong capital. (Synopsis: Bloomberg view: Hong Kong taxi demonstrates the perfect case of "stablecoin daily life") (Background supplement: Deloitte survey: 99% of corporate CFOs will adopt cryptocurrencies for a long time, stablecoins and bitcoin are attracting attention) This is not a start-up opportunity to travel light. From Wall Street investment banks, to technology companies in the Bay Area, to Asia's financial giants and payment platforms, more and more companies are eyeing the same business - stablecoin issuance. Under the scale effect, the marginal issuance cost of stablecoin issuers is zero, and in their eyes, this is like a steady profit arbitrage game. In the current global interest rate environment, the spread income is extremely attractive, stablecoin issuers only need to deposit users' US dollars into short-term US bonds, and can steadily earn billions of dollars per year with 4%~5% spread income. Tether and Circle have proven that this path works, and as stablecoin laws in different regions gradually land, the path to compliance has become clearer, and more and more companies are eager to try, even FinTech giants such as PayPal and Stripe are quickly entering the market. Not to mention that stablecoins also naturally have the ability to integrate with payments, cross-border settlements, and even Web3 scenarios, and there is huge room for imagination. Stablecoins have become a must for global financial companies. But the problem is also here, many people only see the arbitrage logic of stablecoins "seemingly risk-free", but ignore that this is a capital-heavy, high-threshold business. If a company wants to issue a stablecoin legally and compliantly, how much does it cost? This article will break down the true cost behind a stablecoin and tell you whether this seemingly light arbitrage business is worth it. A few accounts behind the issuance of stablecoins In the impression of many people, issuing stablecoins is nothing more than issuing an on-chain asset, and from a technical point of view, the threshold is not high. However, the organizational structure and system requirements behind the real launch of a stablecoin in a compliance capacity and for global users are far more complex than imagined. It not only involves financial licenses and audits, but also includes heavy asset investment in multiple dimensions such as fund custody, reserve management, system security and continuous maintenance. In terms of cost and complexity, its overall construction requirements are no less than that of a medium-sized bank or compliant exchange. The first hurdle for stablecoin issuers is the construction of a compliance system. They often need to navigate regulatory requirements in multiple jurisdictions simultaneously, obtaining critical licenses including US MSB, NEW YORK BitLicense, EU MiCA, Singapore VASP and more. Behind these licences are detailed financial disclosures, anti-money laundering mechanisms, and ongoing monitoring and compliance reporting obligations. For medium-sized banks with cross-border payment capabilities, stablecoin issuers often spend tens of millions of dollars annually on compliance and legal to meet the most basic cross-border operational qualifications. In addition to licenses, the establishment of KYC/AML systems is also a mandatory requirement. Project parties usually need to introduce mature service providers, compliance consultants and outsourcing teams to continuously operate a set of mechanisms such as customer due diligence, on-chain review, and address blacklist management. In today's increasingly regulated world, it is almost impossible to obtain access to major markets without strong KYC and transaction review capabilities. According to market analysis, the total cost required for HashKey to apply for a Hong Kong VASP license is as high as HK$20 million to HK$50 million, and it needs to be equipped with at least 2 regulatory principals (ROs), and must cooperate with the three major accounting firms, which is several times higher than the traditional industry. In addition to compliance, reserve management is also a key cost in stablecoin issuance, covering two parts: custody of funds and liquidity arrangements. On the surface, the asset-liability structure of stablecoins is not complicated, users store value US dollars, and issuers buy equivalent short-term US bonds. But once the reserve size exceeds $1 billion or even $10 billion, the operating costs behind it will rise rapidly. For fund custody alone, the annual fee may reach tens of millions of dollars; Treasury bond trading, clearing process and liquidity management not only bring additional costs, but also rely heavily on the collaborative execution of professional teams and financial institutions. More importantly, in order to ensure the user experience of "redemption and redemption", issuers must prepare sufficient liquidity positions off-chain to deal with large redemption requests under extreme market conditions. This allocation logic is very close to the risk reserve mechanism of traditional money market funds or clearing banks, and is far from being as simple as "smart contract locking". To underpin this architecture, issuers must also establish highly stable and auditable technology systems that cover key financial processes on-chain and off-chain. It usually includes smart contract deployment, multi-chain casting, cross-chain bridge configuration, wallet whitelist mechanism, clearing system, node maintenance, security risk control system, and API docking. These systems not only need to support large-scale transaction processing and capital flow monitoring, but also need to be scalable to accommodate regulatory changes and business expansion. Different from the "lightweight deployment" of general DeFi projects, the underlying system of stablecoins essentially assumes the role of a "public settlement layer", and the technical and maintenance costs are in the millions of dollars all year round. Compliance, reserves and systems are the three basic projects of stablecoin issuance, which together determine whether the project can be sustainable in the long term. Essentially, a stablecoin is not a technical instrument, but a financial infrastructure that combines trust, compliance and payment capabilities. Only those enterprises that truly have cross-border financial licenses, institutional-level clearing systems, on-chain and off-chain technical capabilities, and controllable distribution channels will be able to operate stablecoins as platform-level capabilities. For this reason, before deciding whether to enter this track, companies must first judge whether they have the ability to build a complete stablecoin system, including: whether they can obtain the continuous recognition of multi-local regulators? Do you have your own or trusted custodial funding system? Can you directly control wallets, exchanges and other channel resources and truly open up the circulation end? This is not an entrepreneurial opportunity to travel lightly, but an uphill battle that requires extremely high requirements for capital, systems and long-term capabilities. Stablecoins were issued, and then what? Completing the issuance of stablecoins is just the beginning. Regulatory licensing, technical systems, hosting structures, these are just the prerequisites for admission. The real problem is how to get it in circulation. The core competitiveness of stablecoins lies in "whether anyone uses them or not". Only when a stablecoin is backed by exchanges, integrated by wallets, accessed by payment gateways and merchants, and ultimately used by users, is it truly circulating. And on this road, there are high distribution costs waiting for them. In the illustration of the stablecoin industry chain released by Safeheron, a joint digital asset self-custody service provider, the issuance of stablecoins is only the starting point of the entire chain, and in order for stablecoins to circulate, you need to look to the middle and downstream. Taking USDT, USDC and PYUSD as examples, we can clearly see three distinct circulation strategies: · In the early days, USDT relied on gray scenes to build an irreproducible network effect, and quickly occupied the market standard position by virtue of its first-mover advantage; USDC focuses on channel cooperation under the compliance framework, relying on platforms such as Coinbase to gradually expand; Even if PYUSD is backed by PayPal, it relies on incentives to pull TVL, and it is always difficult to break into real use scenarios. They have different paths, but they all reveal the same thing...