Stablecoins hit $300bn and stalled. Here’s what will restart the rise

The once-soaring stablecoin market is stuck in a rut, but more economic uses and a stronger US dollar promise to reignite growth, analysts say.

Last year, stablecoins added a whopping $103 billion to their total supply, bringing the total to over $300 billion in October.

Yet the same month, the crypto market was struck by its worst-ever leverage wipeout.

Since then, investor appetite for dollar-pegged assets has waned.

Adam Morgan McCarthy, a senior research analyst at Kaiko, sees two key drivers behind the stall: lower trading activity and waning US dollar power.

Stablecoins are a key liquidity vehicle for crypto trading, and with trading volumes down from their October highs, there’s naturally less demand for them as a result, he told DL News.

Additionally, the dollar’s strength relative to other currencies has declined by 9% over the past year.

So holding money in US dollar-denominated stablecoins is less attractive, even with yields around 4%, McCarthy said.

Stablecoins stall

US dollar stablecoins, crypto tokens backed by the US dollar, were supposed to revolutionise how the world moves money by speeding up transfers, lowering costs, and enhancing transparency.

US Treasury Secretary Scott Bessent forecast in November that US dollar stablecoins would swell to $3 trillion by 2030, while Citibank predicted issuance could hit $4 trillion by the same year.

But the technology hasn’t yet achieved the mainstream adoption many hoped it would after the passing of the Genius Act, a key US stablecoin law, in July.

That’s not for a lack of trying.

Dozens of the biggest financial firms are experimenting with stablecoins and incorporating them into their services.

In November, payments giant Visa launched a pilot stablecoin payment scheme for US gig economy workers. Last month, the New York Stock Exchange announced it would launch a tokenised securities trading platform that uses stablecoins for funding.

Wall Street titans BlackRock and JPMorgan have also launched their own stablecoins for institutional investors.

Yet despite those efforts, demand for dollar-pegged assets remains tied to the crypto market’s fluctuations.

Fear factor

With crypto trading as the primary driver of stablecoin demand, a short-term recovery could be difficult.

“The market’s main driver right now is fear. Fear that we’ll go lower,” Danny Nelson, a research analyst at Bitwise Asset Management, told DL News. “In a market like this, good news doesn’t register with investors. If they see an exit ramp, they’re taking it.”

As for the US dollar’s strength, that doesn’t look good either.

The US Dollar Index, a benchmark that measures the dollar’s value against a basket of foreign currencies, has fallen some 11% over the past year.

“The Trump administration had been pretty explicit in the past about making the dollar weaker to support exports,” McCarthy said, adding that he doesn’t see many opportunities for either factor to change in the near term.

Tokenisation push

On a longer time horizon, the drivers that pushed the stablecoin market to $300 billion are still intact, analysts say.

“What reverses this is renewed activity within the ecosystem or economic use,” Fabian Dori, chief investment officer at Sygnum Bank, told DL News. “The next phase of growth will be driven by stablecoins becoming embedded in financial infrastructure.”

One way that’s already happening is through tokenisation, the process of converting ownership rights in assets like real estate, stocks, or bonds into digital tokens on a blockchain.

Proponents, including BlackRock CEO Larry Fink, argue that doing so will accelerate finance, reduce costs, and provide greater accountability.

“We would be reducing fees, we would do more democratisation,” Fink said while speaking on a World Economic Forum panel in Davos, Switzerland, last month. “[If] we have one common blockchain, we could reduce corruption.”

As tokenisation gains traction and institutions issue stablecoins designed for settlement, collateral, and payments, Dori said, demand becomes tied to real financial activity rather than trading.

Dori isn’t the only one looking to the promise of tokenisation to save the stablecoin market.

“Tokenisation is accelerating regardless of the volatility,” Bitwise’s Nelson said. “Companies like BlackRock aren’t getting phased by fear.”

Crypto market movers

• Bitcoin is down 0.6% over the past 24 hours, trading at $67,435.
• Ethereum is up 0.7% past 24 hours at $1,984.

What we’re reading

• Japan’s top securities firms prepare crypto exchange pivot — DL News
• ZeroLend Shuts Down After Liquidity Dries Up Across Layer 2s — Unchained
• How Ethereum devs will use AI to boost blockchain’s development — DL News
• Inside the Crypto Collapse: Binance Selling, ETF Exhaustion & OG Profit Taking w/ Delphi Digital — Milk Road
• What to expect at Trumps’ World Liberty Forum despite $2tn market meltdown and Democrat probes — DL News

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at [email protected].