M^0 and Noble set sights on Tether’s $136B empire

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M^0, a decentralized stablecoin infrastructure layer, is setting a new standard for stablecoin design with its innovative modular architecture, revenue and distribution model. Its first distributor, Noble, is pulling back the curtain on the Noble dollar, USDN, in a bid to shake up the market and disrupt entrenched players.

For the entire history of stablecoin issuance, Tether has been the dominant issuer. Its market share on Ethereum dipped to 30% in 2022 — following growth in Circle’s USDC and Binance’s BUSD — but thanks to its near monopoly on the Tron blockchain, Tether’s market cap has reigned supreme in the stablecoin space.

With Tether ostensibly healthier than ever, it maintains a significant moat — but maybe not an insurmountable one. Robbie Petersen of Delphi Digital noted the importance of M^0’s approach in August, writing that “[M^0] could be best positioned to challenge the Tether monopoly.” 

A new framework

Unlike traditional stablecoin issuers, M^0 operates a multi-issuer protocol, creating a decentralized system where issuers follow protocol rules rather than centralized mandates. Its canonical stablecoin, M, serves as a core building block for custom-branded stablecoins. Known as M-extensions, the Noble dollar is its first.

This system offers issuers full programmability, allowing these branded M-extensions to distribute yield as they see fit — whether to liquidity pools, users or other stakeholders. According to Greg Di Prisco, co-founder of M^0, this structure provides scalability, safety and liquidity unmatched by traditional issuance models.

“We don’t believe that [a centralized issuer model] can possibly scale. You can’t have one company controlling the entire world’s money supply as stablecoins continue to grow. So, we built a protocol that enables a multi-issuer process,” Di Prisco told Blockworks.

Petersen noted the core issue in stablecoins today is that dapps “capture none of the value they create on behalf of stablecoin issuers.” Under M^0’s model, US Treasury yield can become “not only a meaningful source of revenue for apps, but possibly even the principal source.” This transformative potential could lead to a new business model, he argues: “Selling stablecoin distribution as a service (SDaaS).”

Noble intends to pass on 100% of the USDN native yield to holders of the token — at least initially — according to Jelena Djuric, co-founder and CEO of Noble.

“Our entire growth strategy has been keeping things as frictionless as possible,” Djuric told Blockworks, noting that Noble has no transaction fees to use any of its stablecoins. “We want to keep it like that, and the beauty [of] Cosmos and IBC is that it’s low fee and it’s fast — we wouldn’t want to compromise that in any way,” she said.

Noble has previously been known for bringing USDC to IBC-connected chains, and generally improving the cross-chain routing of Circle’s stablecoins. But Djuric said USDN will complement USDC on the Noble chain, describing M^0 as “if Circle and MakerDAO [now Sky] joined forces and had a baby.”

Modularity meets interoperability

M^0 aims to meet the needs of appchains and fintech providers that want to launch their own branded stablecoins without worrying about the collateral backing, or interoperability — both are baked into the protocol underpinning M.

“All of the collateral management is done for them,” Di Prisco said. “The big difference here between other [issuers] like Paxos…is that with Paxos, you’re going through months of negotiations, paperwork, legal documents, lawyers — [but] because we’re a protocol and fully onchain, [we] can give you your own branded stablecoin in minutes,” he said.

Issuers maintain bankruptcy-remote SPVs, and are only allowed to hold 0-to-180-day T-bills that are marked to market. Their actual collateral balance is also checked daily.  “They effectively can’t cheat as long as we maintain the right incentives in the ecosystem,” Di Prisco said.

All M-extensions will be fungible by default, although brand partners have some leeway about exchanges with other distributors.

For Noble, this modular design allows them to maintain a focus on ecosystem expansion. With the anticipated IBC Eureka upgrade — facilitating connections with non-Cosmos-based chains — plus integration into wormhole-supported chains, USDN will benefit from a large addressable market.

“You want to go between Osmosis and dYdX in one click with two separate tokens? You can do that on Noble,” Djuric explained.

The Noble Dollar will launch with a points campaign tied to a future Noble token, further bootstrapping adoption.

But the launch of multiple stablecoins like Agora and M^0, which provide inherent yield, cements the idea that in the future, all stablecoin applications will start with a base yield. Whether this model will truly topple the non-yield bearing incumbents remains to be seen.

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