While Bitcoin’s (BTC) remarkable rise above $100,000 captured the attention of the financial world in 2024, a different segment of the cryptocurrency landscape is quietly gaining traction: stablecoins. Mainstream financial players such as Visa, PayPal, and Stripe are increasingly investing in stablecoin projects— cryptocurrency tokens designed to maintain a stable value, typically pegged to the US dollar or other traditional currencies. Global Demand For Stablecoins Soars This burgeoning sub-sector of digital assets has proven to be remarkably lucrative. Issuers of stablecoins can now invest the reserves backing these tokens into short-term US Treasuries, which offer attractive yields. Unlike the volatile nature of Bitcoin and other cryptocurrencies of the industry, stablecoins are being adopted globally for transactions , providing a sense of reliability amidst the chaos of the crypto markets. Rob Hadick, a general partner at Dragonfly, a digital-asset venture firm, highlighted the growing demand for stablecoins among major companies operating in underserved payment sectors. “We’ve seen significant growth in demand from some of the largest companies in the world that participate in global contractor and employee payouts, trade finance, and remittance,” he explained. According to Bloomberg, the stablecoin market is poised for increased competition as its total market capitalization has surged to approximately $205 billion. Tether Holdings Ltd.’s USDT remains the dominant player, boasting a market cap of around $140 billion. However, challenges loom as regulatory frameworks evolve. The European Union’s Markets in Crypto Assets (MiCA) regulations require that all stablecoins listed on centralized exchanges (CEXs) be issued by entities holding an e-money license. Circle Internet Financial Ltd., Tether’s key competitor, obtained this permit in July, while Tether has yet to apply, placing its future on exchanges at risk. Companies Seek New Revenue Streams Amid Market Volatility In the US, several companies are entering the stablecoin arena. Visa has launched its Tokenized Asset Platform, which enables banks to issue stablecoins. Financial technology company Revolut is exploring the possibility of launching its own stablecoin, while Stripe has acquired the fintech platform Bridge, which specializes in stablecoin transactions. Augustus Ilag, investment partner at CMT Digital, remarked, “Stablecoin issuance is an attractive business model today.” The success of companies like Circle and Tether has prompted many businesses to consider launching their own stablecoins, providing a new revenue stream and a way to diversify their offerings. Johann Kerbrat, crypto general manager at Robinhood, noted that the company is collaborating with Paxos to create an open network for stablecoin use, emphasizing the significant value stablecoins can bring to their platform. However, the rise of stablecoins is not without risks. The catastrophic failure of TerraUSD in 2022, an algorithmic stablecoin that relied on the parallel currency Luna to maintain its fixed value , serves as a cautionary tale. The collapse of TerraUSD triggered a broader selloff in the crypto market, erasing $200 billion in total market value and leading to the bankruptcy of several digital assets companies. Despite the precarious landscape, the regulatory environment for stablecoins in the US remains fragmented. Efforts to establish a comprehensive framework have yet to materialize, while the European Union’s MiCA regulations are paving the way for clearer guidelines and increased adoption among Europe-based companies. Tarun Chitra, general partner at Robot Ventures, pointed out the challenges faced by fintechs under stringent banking-like regulations in Europe. “Stablecoins avoid many of those issues, which also make the process automated,” he noted. Featured image from DALL-E, chart from TradingView.com
