Coinbase (COIN +3.26%) CEO Brian Armstrong recently claimed crypto "doesn't get enough credit for the financial access it's already unlocked for the world" in a post on X. Armstrong noted that stablecoins allowed "anyone, anywhere" to access a low-inflation currency and send it "24/7 for a fraction of a cent", that decentralized finance (DeFi) applications gave "anyone access to credit" and unbanked individuals access to financial services, and that tokenized stocks would expose four billion "unbrokered people" to the U.S. stock market.
Armstrong's bullish take isn't surprising, since Coinbase is one of the world's largest cryptocurrency exchanges. If you agree with Armstrong's perspective, then it might be a good time to review how those catalysts could boost your crypto portfolio's long-term returns.
Image source: Getty Images.
How can you profit from the rise of stablecoins?
The market's largest stablecoins, Tether (USDT +0.00%) and USD Coin (USDC +0.00%), are pegged to the U.S. dollar. Tether is more widely used overseas, while USD Coin -- which is only minted by Circle (CRCL +5.75%) -- is the leading stablecoin in the U.S. market.
Stablecoins can be deposited into third-party lending markets, automated market makers, and liquidity pools to earn higher yields than traditional dollar-based savings accounts. However, some of those platforms are much riskier than FDIC-backed banking accounts.
NYSE: CRCL
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Another simple way to invest in the growth of the stablecoin market is through Circle, which generates most of its revenue by collecting interest on the cash and U.S. Treasuries it holds to back its own stablecoins. Through a revenue-sharing agreement with Circle, Coinbase also receives all of the interest income generated from the USDC that its held directly on its platform.
What are the best plays on decentralized applications?
Ethereum (ETH -0.11%) and Solana (SOL +0.55%), the two largest developer-oriented blockchains, will profit from the increased development of decentralized apps and tokens. Both blockchains support smart contracts, which are used to develop those apps and crypto assets.
Ethereum has a larger developer base, but Solana processes transactions faster. The native tokens of both blockchains, which are used to fund the gas fees for their transactions, will become more valuable as their platforms attract more developers.
CRYPTO: ETH
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Another key player is Chainlink (LINK +1.18%), the world's leading oracle network. Chainlink gathers data from external sources -- such as weather reports, stock tickers, and news reports -- and delivers them to Ethereum, Solana, and other blockchains in real time. That data is essential for the development of decentralized apps. The node operators who gather that data are paid with Chainlink's native LINK token -- and its value should rise as its network expands.
Which companies will benefit from tokenized stocks?
When a stock is tokenized, it becomes a digital token on a blockchain that can be traded much faster than traditional stocks without going through any middlemen. These tokens can also be traded 24/7, split into fractional shares, easily flow across international borders, and be easily integrated into DeFi applications via smart contracts. By using a blockchain as a secure public ledger, tokenized stocks are less vulnerable to settlement failures or administrative fraud.
As Armstrong mentioned, tokenized stocks make it much easier for overseas investors without U.S. brokerage accounts to invest in U.S. companies. The expansion of that total addressable market could be a game changer for companies like Robinhood (HOOD +4.70%).
NASDAQ: HOOD
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In early July, Robinhood launched its own blockchain (Robinhood Chain) to support tokenized stocks. According to DefiLlama, tokenized real-world assets (RWAs) on Robinhood Chain -- including tokenized stocks -- reached $70 million by late July. So if you're looking for an early mover in this nascent market, Robinhood deserves a closer look.
When will these tailwinds kick in?
Armstrong's opinions make a lot of sense. Still, the crypto market could remain chilly this year as fears of interest rate hikes and other macro headwinds drive investors toward more conservative investments. But over the long term, those catalysts could kick in and fundamentally transform the financial sector. When that happens, stocks like Circle and Robinhood -- and tokens like Ether and Solana -- could soar much higher.
