The $205 billion stablecoin cryptocurrency market is set to go mainstream

December 31, 2024

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The $205 billion stablecoin cryptocurrency market is set to go mainstream

(Bloomberg) – While Bitcoin (Bitcoin-dollar) Rising above $100,000 has grabbed headlines in 2024, and many financial companies have been more focused this year on a different type of cryptocurrency whose price is never meant to go up — or go down, for that matter.

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Major players such as Visa and PayPal Holdings Inc. and Stripe Inc. and others with investments in projects involving stablecoins, which are crypto-tokens typically designed to be linked to the value of the US dollar or another traditional currency.

This sub-sector of the digital asset space has proven to be a lucrative business, now that issuers are able to invest the reserves backing stablecoins in short-term US Treasuries with attractive yields. Unlike Bitcoin and other tokens that are vulnerable to price fluctuations, the use of stablecoins as de facto currencies in transactions is gaining popularity around the world.

“We have seen significant growth in demand from some of the world’s largest companies involved in underserved payment sectors such as global contractor and employee payments, trade finance, and remittances,” said Rob Haddick, General Partner at Digital. Dragonfly Assets Company. “There is significant demand from end users to receive US dollars, which can be nearly impossible using unstable currency paths, but also from senders who want to bypass the correspondent banking system which can be slow, expensive and have high failure rates.”

Next year is expected to see increased competition in stablecoins, which have collectively grown to about $205 billion in market capitalization, according to tracker DeFiLlama. While Tether Holdings Ltd.’s USDT has consolidated its lead in the market this year, reaching a current market capitalization of around $140 billion, headwinds to its dominance are emerging as the calendar turns to 2025.

EU crypto asset market rules require that all stablecoins listed on centralized exchanges be issued by an entity with a so-called e-money licence. Tether’s main competitor, Circle Internet Financial Ltd, received such a permit in July. Tether has not yet applied for one, which means the risk of the token being removed by exchanges. Several cryptocurrency exchanges operating in the EU have already removed USDT from the list.

At the same time, many American companies are entering this field. Visa has launched a new platform called Visa Tokenized Asset Platform for banks to issue stablecoins and other tokens. Fintech company Revolut is considering issuing its own stablecoin, Bloomberg reported in September. Stripe, the payments company founded by billionaire brothers Patrick and John Collison, has acquired fintech platform Bridge, which specializes in stablecoin transactions. PayPal already has its own dollar-tracking cryptocurrency called PYUSD which was created in collaboration with New York-based Paxos.

“Issuing stablecoins is an attractive business model today,” said Augustus Ilage, investment partner and head of Asia at CMT Digital. “Many players have recognized the attractiveness of this, on the back of the success of companies like Circle and Tether. By launching stablecoins, companies gain a new revenue stream, which is a compelling addition for many companies looking to diversify their offerings.”

Ilaj added that since stablecoins run on the blockchain, they reduce transaction costs and improve the overall efficiency of transferring funds.

Johan Kerbrat, general manager of crypto at Robinhood, said his company is working with stablecoin issuer Paxos to be part of an open network for stablecoin use called the Global Dollar Network.

“We have a lot of money moving across the platform, such as between Robinhood and market makers or other entities, so you can see that stablecoins have a lot of value,” he said.

Of course, stablecoins are not without risks. TerraUSD, an algorithmic stablecoin that uses a floating-rate parallel coin, Luna, to maintain its fixed value of $1, failed in spectacular fashion in 2022. Its collapse led to a massive sell-off that wiped out $200 billion from the cryptocurrency’s total market cap. Many digital asset companies later went bankrupt partly due to the Terra implosion.

More than two years later, there is currently no unified federal regulatory regime for stablecoins in the United States, despite efforts by lawmakers and regulators to push for a comprehensive framework. However, in the European Union, new MiCA rules to supervise the cryptocurrency industry set clear guidelines on stablecoin regulations and led to a rush for their adoption by companies and startups based in Europe.

“European governments want fintechs to be more like banks and have Basel-like requirements, which is basically killing them compared to other banks because fintechs are like narrow banks,” said Tarun Chitra, general partner at investment fund Robot Ventures. “Stablecoins avoid many of these issues, also making the process automated.”

With cryptocurrency markets euphoric following Donald Trump’s US election victory, many are optimistic that the industry will prosper further in 2025 following this year’s rebound. Stablecoins may provide the path of least resistance for non-crypto companies looking to get involved with digital assets.

“Stablecoins allow them to enter the world of cryptocurrencies without compromising the risky aspects of securities and the fraudulent parts,” said Anna Yuan, founder of the Perena stablecoin project.