"Digital dollars" are on the rise

The market for stablecoins is set to grow even further in the coming years

Hi all,

We had a look at stablecoins recently to explain what that actually is. Now we're looking at some more financial data. Why? Two reasons.

Regulation is catching up. Stablecoins have been dominated by the US dollar so far, but the European Union will have its own regulation in force in a few weeks. That could lead to at least some growth in the European market.

Moreover, the market is already quite big. Stablecoins are worth more than $160 billion today, and they are increasingly used for all kinds of transactions. Looking at the data therefore makes a lot of sense.

So what’s up?

We'll look at two aspects:

  • The expansion of stablecoins

  • Data about usage and adoption

Let’s get started! 🤓

As we explained earlier, stablecoins are not complicated to understand. They simply mirror the value of an external reference, most commonly of the US dollar. Ideally, one unit of a stablecoin is therefore always worth exactly one dollar.

Lots of people would then ask why you couldn't just use a regular dollar. There are a few answers to that question. In a nutshell though: stablecoins enable you to enjoy the benefits of cryptocurrency payments (e.g. cheap and fast cross-border transfers) while avoiding the volatility of traditional cryptocurrencies.

That seems to be an attractive proposition, based on the numbers.

Expanding volumes and use cases

Stablecoins have expanded a lot over just a few years. Back in 2020, the total value of stablecoins was below $10 billion. Today, they're worth more than $160 billion.

The market is dominated by USDT, issued by Tether. The market capitalisation of USDT alone is currently above $110 billion. Circle's USDC follows with slightly more than $30 billion.

In addition, there are some other players. That includes crypto-native organisations which are not really household names, even though they are managing substantial portfolios.

It also includes a company like PayPal which started to issue its own stablecoin in 2023. So far, it's relatively small, but it's significant because a big player like PayPal went through all the regulatory complications to actually issue a stablecoin. It's safe to assume that PayPal's management sees a potential business opportunity.

Another finance company has also made some crypto-related headlines recently. Stripe is now processing crypto payments, starting with USDC. It's arguably a small part of the market for now, but the potential for growth is enormous.

Current usage and adoption

There are some obvious questions related to the seemingly unstoppable rise of stablecoins. Are transactions generating real economic value? Are stablecoins mainly held as a store of value or are they a medium of exchange, similar to 'real' money? How does an average transaction look like?

There are no definitive answers to all these questions. The situation is constantly developing, and not every piece of data that would be useful is readily available. That said, blockchain data is highly transparent and provides some useful insights.

According to analysis conducted by Coin Metrics, there are already interesting differences in the typical value of transactions, depending on the respective network. Large stablecoins are available on different blockchains which have unique characteristics. One of those are the fees which users have to pay for transactions.

The Ethereum blockchain offers a high degree of security, but transaction fees are higher than on other blockchains. The median transfer volume for USDC and USDT on Ethereum therefore averages around $500 per transaction. On Tron, the median transaction size is slightly less than half of that amount. On the Solana blockchain, where fees can be as low as $0.01, the median transaction volume is even lower.

That seems to indicate that stablecoins are actually used for payments. Coupled with surveys about crypto ownership in various countries, it's interesting to note that many countries which are heavily reliant on remittances have a high crypto adoption rate.

It's reasonable to assume that remittances are increasingly conducted as stablecoin payments which are much cheaper than traditional cross-border payments via providers such as Western Union. At the same time, recipients can spend the crypto equivalent of US dollars which is often a superior choice compared to domestic currencies.

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That’s the end for today! 😢

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