While Bitcoin’s (BTC) remarkable rise above $100,000 captured the eye of the financial world in 2024, a special segment of the cryptocurrency landscape is quietly gaining traction: stablecoins.
Mainstream financial players equivalent to Visa, PayPal, and Stripe are increasingly investing in stablecoin projects—cryptocurrency tokens designed to take care of a stable value, typically pegged to the US dollar or other traditional currencies.
Global Demand For Stablecoins Soars
This burgeoning sub-sector of digital assets has proven to be remarkably lucrative. Issuers of stablecoins can now invest the reserves backing these tokens into short-term US Treasuries, which supply attractive yields.
Unlike the volatile nature of Bitcoin and other cryptocurrencies of the industry, stablecoins are being adopted globally for transactions, providing a way of reliability amidst the chaos of the crypto markets.
Rob Hadick, a general partner at Dragonfly, a digital-asset enterprise firm, highlighted the growing demand for stablecoins amongst major firms operating in underserved payment sectors.
“We’ve seen significant growth in demand from a number of the largest firms on this planet that take part in global contractor and worker payouts, trade finance, and remittance,” he explained.
According to Bloomberg, the stablecoin market is poised for increased competition as its total market capitalization has surged to roughly $205 billion.
Tether Holdings Ltd.’s USDT stays the dominant player, boasting a market cap of around $140 billion. Nevertheless, challenges loom as regulatory frameworks evolve.
The European Union’s Markets in Crypto Assets (MiCA) regulations require that each one stablecoins listed on centralized exchanges (CEXs) be issued by entities holding an e-money license.
Circle Web Financial Ltd., Tether’s key competitor, obtained this permit in July, while Tether has yet to use, placing its future on exchanges in danger.
Firms Seek Recent Revenue Streams Amid Market Volatility
Within the US, several firms are entering the stablecoin arena. Visa has launched its Tokenized Asset Platform, which enables banks to issue stablecoins.
Financial technology company Revolut is exploring the opportunity of launching its own stablecoin, while Stripe has acquired the fintech platform Bridge, which makes a speciality of stablecoin transactions.
Augustus Ilag, investment partner at CMT Digital, remarked, “Stablecoin issuance is a horny business model today.” The success of firms like Circle and Tether has prompted many businesses to contemplate launching their very own stablecoins, providing a recent revenue stream and a approach to diversify their offerings.
Johann Kerbrat, crypto general manager at Robinhood, noted that the corporate is collaborating with Paxos to create an open network for stablecoin use, emphasizing the numerous value stablecoins can bring to their platform.
Nevertheless, the rise of stablecoins isn’t without risks. The catastrophic failure of TerraUSD in 2022, an algorithmic stablecoin that relied on the parallel currency Luna to take care of its fixed value, serves as a cautionary tale.
The collapse of TerraUSD triggered a broader selloff within the crypto market, erasing $200 billion in total market value and resulting in the bankruptcy of several digital assets firms.
Despite the precarious landscape, the regulatory environment for stablecoins within the US stays fragmented. Efforts to ascertain a comprehensive framework have yet to materialize, while the European Union’s MiCA regulations are paving the best way for clearer guidelines and increased adoption amongst Europe-based firms.
Tarun Chitra, general partner at Robot Ventures, identified the challenges faced by fintechs under stringent banking-like regulations in Europe. “Stablecoins avoid lots of those issues, which also make the method automated,” he noted.
Featured image from DALL-E, chart from TradingView.com