What was initially promised to be a ‘crypto’ revolution has settled into something starkly different, though just as disruptive: a stablecoin revolution.
Yes, as world leaders pump their own memecoins and legislatures pass measures which specify exactly how much BTC a bank can keep on its balance sheet, the winner has been the assets that are most divorced from the volatile, number-go-up circus of ‘crypto’ markets, yet manage to deliver the practical benefits of digital currency.
In other words, the world is beginning to prioritize utility over volatility.
The numbers bear this out.
The total market capitalization of stablecoins is now over $300 billion. The third-largest coin on the market, after behemoth first movers BTC and ETH, is Tether (USDT), a stablecoin with a market cap of $183 billion.
When you look at which coins are actually being used, stablecoin dominance becomes even clearer. In any given 24-hour period, USDT dominates transaction volumes. At the time of writing, $126.7 billion in USDT transactions had been made. BTC and ETH come in as distant seconds and thirds ($74 billion and $37.6 billion, respectively), while another stablecoin, Circle’s (NASDAQ: CRCL) USDC, pulls in at fourth (with a 24-hour transaction volume of almost $12 billion).
Not surprisingly, Tether accounts for a substantial 59.6% of the market cap. However, as stablecoins have taken up an increasingly large share of the digital asset conversation, this trend has also shifted: the figure peaked at 75% in September and has since declined. Its share of the pie is being eaten by swathes of new offerings. There are alternate USD-pegged assets—which make up the entirety of the top ten stablecoins—but also alternate currency pegs such as Circle’s EURC or any number of Renmibi-linked assets.
Put simply: to the extent that the traditional top dogs (USDC, USDT) are losing ground, they’re losing it to new stablecoins rather than other types of digital asset.
Back to the top ↑
The fuel for this revolution comes in two cans.
First, stablecoins have always enjoyed a unique advantage over popular pure digital assets: their adoption is driven by need, rather than the promise of a moonshot. People bought stablecoins because they could actually use them: they carry no worries about sudden changes in price, can be transferred with the ease of sending a Bitcoin and the costs of doing so are negligible.
Even ongoing questions surrounding the backing of stablecoins, such as Tether, and the high-profile collapse of supposedly pegged assets like LUNA did little to dampen enthusiasm.
The second is the passage of legislation to establish rules and expectations regarding how stablecoins and their issuers must operate. This is a relatively recent phenomenon, but it has helped entrench stablecoins into the mainstream consciousness and, most importantly, set the stage for real money: institutional adopters.
The U.S. passed the GENIUS Act, the EU passed Markets in Cryptoassets Regulation (MiCA), and other jurisdictions are either engaging in regulatory sandboxes or preparing their own comprehensive legislation. The rules these instruments introduce are critical: for example, both GENIUS and MiCA legally require issuers to hold reserves at 1:1 ratio against the number of stablecoins in circulation. Both entitle holders to redeem their holdings in full.
But with these frameworks, the legal grey areas and risk areas are being narrowed. This not only makes stablecoins more well-known and attractive to individuals who might use them, but it also creates a path for much larger institutions to embrace them.
Back to the top ↑
This is a large reason why, in September, Citi Group (NASDAQ: C) revised its original April forecasts for the stablecoin market: its ‘base case’ was increased from $1.6 trillion to $1.9 trillion, while its ‘bull case’ shot up from $3.7 trillion to $4 trillion.
“We see an ecosystem where stablecoins, tokenized deposits, deposit tokens and CBDCs can all flourish and co-exist. Different forms of money will find different product market fit with usage shaped by trust, interoperability and regulatory clarity.”
Similarly, a report by JPMorgan (NASDAQ: JPM) in September projected that the stablecoin market could more than double in the coming years.
“Stablecoins seem here to stay. A few years ago, we probably would have debated the accuracy of that sentence. Not today,” writes Teresa Ho, head of J.P. Morgan’s U.S. Short Duration Strategy.
From the perspective of institutions, stablecoins are a compelling proposition. Amid the goldrush into digital assets generally, the pressure is on for institutions—from banks to fund managers—to incorporate the asset class into their businesses. But pure digital assets—self-custodial tokens with no obvious, assessable value—are too big a jump for many. Not only do they present as riskier assets to hold on their balance sheets, but they’re a far cry from how large companies and institutions already do business.
Not so with stablecoins. Not only do they pose far less of a risk than something like BTC, they offer advantages over and above legacy systems: finality of transactions, round-the-clock settlement, and much faster transacting. If a bank wants to manage its cash at scale, why would it rely on dated, incumbent systems to do so when it can enjoy all the benefits of digital assets with almost none of the downsides?
Back to the top ↑
This is already playing out as legacy businesses explores the digital asset pool via stablecoins.
For instance, Paypal (NASDAQ: PYPL) has issued its own USD-linked stablecoin; Visa (NASDAQ: V) allows for settlement with USDC. In some ways, these are the stablecoin’s natural enemies: they promise to fix almost everything that legacy payment providers can’t. As the adage goes: if you can’t beat them, join them.
Before we get there, challenges remain. In Citi Group’s most recent stablecoin report, it identified key challenges that must be addressed for institutional adoption to take hold.
These include:
- Fragmentation and interoperability: The report states that seamless interaction between different formats and blockchain networks is necessary for wider adoption to occur.
- Privacy and obfuscation: Institutional participants are likely to demand the right balance between transparency and privacy, particularly in relation to vetting reserves.
- Scalability, liquidity, and trust: The more institutional adoption, the more likely that stablecoins will be involved in large-value transactions, meaning stablecoins must be proven to work at scale.
Nonetheless, the wind seems to be blowing only one way. The passage of the GENIUS Act and MiCA are significant, but whatever effect those Acts will have on institutions’ appetites for stablecoins, they’re likely pushing at an already open door. The question is how fast adoption will come and how drastically this new asset class will be integrated into institutions’ core operations.
Back to the top ↑
Watch | MiCA and the Future of Stablecoins: What Comes Next for Tether?
title=”YouTube video player” frameborder=”0″ allow=”accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share” referrerpolicy=”strict-origin-when-cross-origin” allowfullscreen=””>
Source: https://coingeek.com/its-time-for-institutional-stablecoin-adoption/
