While Bitcoin’s meteoric rise grabbed the headlines in 2024, another revolution took place within the crypto world.
In the past year, payment processors and major financial institutions have focused their attention on stablecoins. Stablecoins are a type of cryptocurrency that is designed to keep a constant value. They’re usually pegged to a traditional currency or to the US Dollar.
Stablecoins are a new asset class that is gaining popularity as major players like Visa, PayPal and Stripe, who have been attracted to their real-world potential and business opportunities, invest in stablecoin projects.
The lure of stability: A new era in crypto transactions
Stablecoins have proven to be profitable business ventures, with issuers investing the reserves that back them in short-term US Treasuries which provide attractive yields.
Stablecoins have become popular as a currency in the global market, largely because of their predictability and reliability.
Rob Hadick, a general partner at Dragonfly, a digital-asset venture firm, told Bloomberg:
Some of the biggest companies around the globe have seen a significant increase in their demand for payment services in areas like trade finance and remittance, global employee and contractor payouts and other underserved verticals. End users are eager to receive US dollars which is nearly impossible with non-stablecoin railways. However, there’s also a demand for senders that want to avoid the costly and slow correspondent banking system.
The market competition is heating up
According to DeFiLlama, the market for stablecoins, which has reached a total of approximately $205 billion in value, is likely to be more competitive this year.
Tether’s USDT is still leading the market, with a cap around 140 billion dollars. However, as we approach 2025, there are regulatory challenges.
The European Union’s Markets in Cryptoassets rules (MiCA), in particular, mandates that stablecoins on central exchanges are issued only by entities with an electronic money license.
Tether, the main competitor of Circle Internet Financial Ltd. (Tether), has not yet applied for such a license, and could risk being delisted from a number of crypto exchanges in Europe.
Stablecoins are gaining popularity among mainstream players
Stablecoins are gaining popularity in the US.
Visa has launched the Visa Tokenized Asset Platform. This platform is designed to allow banks to create stablecoins, and other types of tokens.
Revolut also considers launching its stablecoin. Payments company Stripe acquired Bridge fintech platform, which is specialized in stablecoin transaction.
PayPal has already created its own cryptocurrency that tracks dollar amounts, called the PYUSD coin, in partnership with New York’s Paxos.
Augustus Ilag is the investment partner at CMT and also head of Asia. He told Bloomberg that:
The issuance of stablecoins is a popular business model in today’s world. A lot of players are now aware of how appealing this business model can be. This is due to the success of Circle and Tether. Stablecoins provide a revenue source for companies, which is a great addition to businesses that are looking to diversify.
Stablecoins are also more efficient and cheaper to move money because they run on the blockchain.
The future of stablecoins
Johann Kerbrat is the crypto general manager of Robinhood. He told Bloomberg his company has partnered with Paxos, a stablecoin-issuing firm, to join the Global Dollar Network. “We are moving a great deal of money around our platform between Robinhood’s market makers and other entities. So, you can easily see the value of stablecoins.”
The failure of TerraUSD 2022 has shown that stablecoins do not come without risk.
The event caused the total crypto market capital to drop by $200 billion and several companies that dealt in digital assets went bankrupt.
Future growth and regulatory frameworks
The EU’s new MiCA regulations, which offer clear guidelines on the regulation of stablecoins, have made significant progress despite the absence of a federally unified regulatory system in the US.
Tarun Chitra is the general partner at Robot Ventures and he spoke to Bloomberg.
Fintechs, like narrow banks, are viewed as a threat by European governments who want them to behave more like banks. Stablecoins eliminate many of these issues and automate the process.
Many are hopeful about the potential growth of the industry in 2025, as the crypto market is experiencing a revival.
Anna Yuan is the founder of Perena’s stablecoin. She noted, “Stablecoins let them get into crypto, without having to touch the risky parts of securities or scammy bits.” This makes stablecoins a great option for companies that are not in the cryptocurrency industry and want to be exposed to digital assets.
The post Power of Stablecoins: What’s Driving their $200 billion Growth may be updated as new information unfolds
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