While meme coins sparked a frenzy among retail traders, stablecoins seem to emerge as crypto’s most promising innovation so far.
The meme coin craze keeps going strong, even though regulators are being cautious because of their wild price swings. While these tokens can offer huge returns, the real game-changer might be something that seems less exciting and even a bit boring — stablecoins.
In fact, stablecoins seem to gain support even from the camp, which was initially afraid of crypto at all, which was big banks. Citi Wealth strategists emphasized in a recent research report that stablecoins “could end up reinforcing the U.S. dollar’s dominance,” adding further that activity has reached record highs, with $5.5 trillion in value across Q1 2024.
“Rather than usurping the dollar, therefore, this variety of cryptocurrency could thus make dollars more accessible to the world and reinforce the U.S. currency’s longstanding global dominance.”
Citi Wealth
Unlike bitcoin (BTC), their value doesn’t swing wildly, making these assets useful for daily payments, savings, and lending. Most stablecoins are backed by reserves like cash or U.S. Treasuries, ensuring they maintain their value.
Oddly enough, stablecoins initially started as tools for crypto traders. They let traders hold funds in a digital dollar instead of converting them back to real dollars. However, as of today, their use has expanded significantly as many people now use them for cross-border payments, savings, and even loans.
State of stablecoins
Stablecoins grow fast. Like, really fast. Since their launch in 2014, they’ve reached a market value of more than $200 billion, per data from CoinGecko. In 2024, Citi claims that $5.5 trillion worth of transactions involved stablecoins, adding that that’s more than Visa, which processed $3.9 trillion. Popular stablecoins include Tether (USDT), USD Coin (USDC), and decentralized DAI (DAI). Together, they dominate the market, but they differ in accessibility.
Total stablecoin market capitalization | Source: Citi Wealth
In Europe, with the MiCA regulation coming up, DAI and USDT might be dropped as big crypto exchanges like Coinbase plan to stop offering them due to new regulations. Tether CEO Paolo Ardoino criticized the EU’s rules, saying MiCA’s stablecoin regulations could pose “systemic risks” to European banks.
It’s not developed countries leading the charge for stablecoin use, but emerging markets are playing a bigger role. In places with weak currencies, people turn to stablecoins to access dollars, according to data from blockchain firm Chainalysis. This is especially true in countries like Argentina, where inflation makes local money unreliable, as stablecoins are faster and cheaper than traditional bank transfers.
Stablecoins and competition with US dollar
Stablecoins are not just a crypto trend. They seem to reinforce the power of the U.S. dollar. Around 93% of stablecoins are linked to the dollar, Citi’s strategists note. This makes dollars more accessible globally, especially in countries where access to U.S. banks is limited. Citi notes this could further strengthen the dollar’s role as the world’s reserve currency.
However, stablecoins are not without risks. Issues like issuer insolvency, custodian problems, and “de-pegging” can arise. Some stablecoins have collapsed in the past, while others have temporarily lost their peg. Regulators are watching closely, and new rules in the U.S. and Europe aim to make stablecoins safer for users.
Trillion dollar opportunity
The main backers of stablecoins aren’t retail users in emerging markets but venture capitalists who seem to be very excited about them.
Californian venture capital firm Pantera Capital calls stablecoins a “trillion-dollar opportunity,” pointing out they now account for over 50% of blockchain transactions, up from just 3% in 2020.
“In a short period of time, stablecoins have showcased their ability to be one of the transformative innovations within crypto. And 2024 has been a breakout moment for stablecoins, transacting over ~$5 trillion in adjusted volume, over $1 billion transactions, across nearly 200 million accounts.”
Pantera Capital
Pantera Capital sees stablecoins as a solution for the trillion-dollar cross-border payment market. With global remittances also generating billions each year, Pantera believes stablecoins are on track to make cross-border payments via crypto a reality.
Pantera Capital is not alone in betting big on stablecoins. Startup accelerator Y Combinator earlier even included stablecoins as a separate category for funding requests, emphasizing their potential. Brad Floar, group partner at Y Combinator says it’s “clear that stablecoins will be a big part of the future of money.”
Future of stablecoins
The stablecoin market is still growing, with companies working on tools to make payments and conversions easier. Platforms like BitPay and Coinbase Commerce allow businesses to accept stablecoins and quickly convert them to fiat, making them more user-friendly.
Regulation is obviously still in its early stages. Clear rules could help build trust and bring in more users, though regulations like MiCA have already raised concerns for major stablecoin issuers. One thing’s for sure: as stablecoins continue to grow, their impact on global finance will likely increase.
