Most retail investors purchase stablecoins on cryptocurrency exchanges, but an alternative option is to buy them directly.
However, doing so isn’t always straightforward. For the two most popular stablecoin issuers, Circle and Tether, a preference for high-volume institutional clients sidelines small-time investors entirely.
On Tuesday, October 31, Circle announced that it would discontinue consumer stablecoin minting, telling users in an email that their accounts would be closed on November 30. Henceforth only businesses and institutions will be able to mint Circle’s dollar- and euro-pegged stablecoins, USDC, and EURC.
On the surface, the closure of retail accounts looks like a sudden rejection of do-it-yourself stablecoin minting by Circle. But CEO, Jeremy Allaire, pointed out that the company’s issuance model has been “institution only” for years, and that the changes would only affect a few thousand individual user accounts.
While Allaire’s argued that exchanges like Coinbase continue to offer “excellent retail access,” to USDC, some investors might question the need for an institutional middle-man.
But if the world’s second-largest stablecoin issuer refuces to engage with individual investors, what about the market leader, Tether?
Although Tether hasn’t completely ruled out allowing individuals to mint its stablecoins in the same way Circle has, with a minimum deposit amount of $100,000, direct minting is out of reach for many investors. The firm also charges a 0.1% transaction fee on each deposit.
What’s more, according to Tether’s terms of service , US persons are prohibited from accessing its platform, with the possible exemption of “Eligible Contract Participants,” a legal term that excludes all but the wealthiest individuals.
Because only the biggest players can plug directly into Tether and Circle’s stablecoin supply, fluctuations in the market price of stablecoins present them with a lucrative arbitrage opportunity.
When they trade below the dollar on exchanges, institutions can buy stablecoins cheaply, knowing they can redeem them for their fiat value at any time. Conversely, when they trade above a dollar, firms can sell back to the issuer for a profit. Throw other markets besides basic stablecoin for fiat swaps into the mix and the strategy can be even more profitable.
In fact, before its bankruptcy in 2022, Alameda Research was responsible for minting almost half of all USDT in circulation thanks to its ability to play the stablecoin market.
While minting USDT or USDC is inaccessible to the average investor, there are plenty of other stablecoins that anyone can purchase straight from the issuer.
Among fiat-collateralized stablecoins, TUSD provides a direct-to-consumer issuance model with no minimum purchase requirement. After creating an account and verifying their identity, anyone can mint and redeem TUSD without having to pay fees.
Alternatively, investors that lock up crypto collateral through the decentralized MakerDAO platform receive fresh Dai in return.
Decentralized stablecoins like Dai are more expensive to mint because of their overcollateralizion. For example, $166 worth of ETH or another eligible crypto asset must be deposited to receive $100 worth of Dai. Nevertheless, many people prefer them because they are more transparent and can be acquired anonymously.