In 2024, while everyone’s eyes have been on Bitcoin’s (BTC) unprecedented surge past $100,000, another area within the cryptocurrency sphere is quietly making waves: stablecoins.
Major financial entities like Visa, PayPal, and Stripe are turning their focus to stablecoins—digital tokens that are built to hold steady value, often tying themselves to the US dollar or other established currencies.
Soaring Global Demand for Stablecoins
This emerging sector of digital assets is proving to be quite lucrative. Stablecoin issuers have the opportunity to invest their reserve funds into short-term US Treasuries, which are currently offering inviting returns.
Stablecoins, unlike the notoriously volatile Bitcoin, are increasingly being utilized worldwide for transactions, offering a much-desired sense of stability amid the unpredictable crypto markets.
Rob Hadick, a general partner at the digital-asset venture firm Dragonfly, noted the rising interest in stablecoins from major firms in under-served payment sectors. “We’re witnessing a significant uptick in interest from huge global corporations involved in international contractor and employee payments, trade finance, and remittances,” he elaborated.
Reports from Bloomberg indicate that the stablecoin sector is gearing up for more competition, with its total market capitalization now nearing $205 billion. Tether Holdings Ltd.’s USDT is leading the pack with a market cap of about $140 billion. However, challenges are emerging as regulatory standards change.
The European Union’s Markets in Crypto Assets (MiCA) regulations mandate that all stablecoins on centralized exchanges be issued by companies with an e-money license. Circle Internet Financial Ltd., Tether’s primary contender, secured this permit in July, while Tether hasn’t applied yet, potentially jeopardizing its standing on exchanges.
Companies Hunt for New Revenue Streams Amid Market Volatility
In the United States, several firms are stepping into the stablecoin scene. Visa has launched its Tokenized Asset Platform allowing banks to distribute stablecoins. The fintech company Revolut is looking into creating its own stablecoin, and Stripe has purchased Bridge, a fintech platform focused on stablecoin transactions.
Augustus Ilag, an investment partner at CMT Digital, commented, “Issuing stablecoins represents a compelling business model today.” The success achieved by companies like Circle and Tether is inspiring many businesses to explore launching their own stablecoins, offering them a fresh revenue stream and a way to broaden their reach.
Johann Kerbrat, Robinhood’s crypto general manager, mentioned that Robinhood is working with Paxos to develop an open network for stablecoin usage, highlighting the substantial benefits stablecoins could add to their operations.
Nevertheless, the rise of stablecoins does carry certain risks. The 2022 collapse of TerraUSD, an algorithmic stablecoin that tried to maintain its value via the paired currency Luna, serves as a stark warning.
The downturn of TerraUSD triggered a sweeping sell-off within the crypto market, wiping out $200 billion in market value and leading to the failure of several digital asset firms.
Despite the volatility, the US regulatory scene for stablecoins is still somewhat disorganized. Efforts to create a robust framework have stalled, while the EU’s MiCA regulations are laying the groundwork for clearer standards and increased acceptance amongst European companies.
Tarun Chitra, general partner at Robot Ventures, discussed the challenges fintechs face under Europe’s tough bank-like regulations. “Stablecoins circumvent many of these hurdles, simplifying processes through automation,” he observed.
The daily chart reflects a total crypto market cap valuation of $3.4 trillion. Source: TOTAL on TradingView.com
Featured image from DALL-E, chart from TradingView.com
