For seasoned players like Visa and PayPal, the growth of cryptocurrencies tethered to the dollar poses a potential danger. It’s interesting that the stock market doesn’t appear to completely appreciate the significance of this trend, even if it illustrates the hopeful future of digital payments.
Stablecoins are the cornerstone of the cryptocurrency ecosystem because they are often pegged 1:1 to the US dollar. These tokens, notably Tether, which, after Bitcoin and Ether, has the third-highest market value, historically offer liquidity in cryptocurrency trading and ease the entry of conventional currencies into the world of digital assets. However, their job is expanding to include payments in addition to trading.
Traditional Giants vs. Stablecoin Volumes
Stablecoins processed more than $11 trillion in transactions on the blockchain in 2022, surpassing PayPal’s transaction volume and coming close to Visa’s $11.6 trillion volume. More than 25 million blockchain wallets store stablecoins worth more than $1, with 80% of these wallets holding $100 or less, according to a research by the macro hedge fund Brevan Howard. This information is startling because it shows that stablecoins are possibly providing global financial services to those who are disadvantaged by traditional financial institutions.
Peter Johnson and Sai Nimmagadda of Brevan Howard highlight the adoption of stablecoins’ quick growth by drawing comparisons to some of the most important payment systems in existence today. This increase highlights the potential for the payments sector to expand, which has the potential for high profitability. For instance, the Tether issuer may generate roughly $6 billion in profit this year, exceeding the profitability forecasts of the massive financial firm BlackRock.
Stablecoins are being recognized by businesses as having promise, but the stock market’s reaction doesn’t totally support this view. A leader in finance with a well-established cryptocurrency business, PayPal recently disclosed plans to launch its own coin with a dollar price. Despite an initial rise in share price, PayPal’s shares later fell by 4%. Similar to this, famous cryptocurrency broker Coinbase Global disclosed its small interest in Circle Internet Financial, the company behind USD Coin, the second-largest stablecoin. There is still doubt, though, as to whether such actions can revive stablecoins.
Challenges with regulations and a global appeal
Some people may be surprised by the rise in stablecoin usage because stablecoins are more popular abroad because the fundamental value proposition is more compelling there. Stablecoin acceptance, according to Johnson and Nimmagadda, is a worldwide phenomena that has made it possible for internet users to access dollar-based financial services.
Stablecoins and the businesses interested in their potential face a significant problem, though, in the form of regulatory obstacles. Although U.S. officials have expressed interest in stablecoins, there has been no movement in defining regulations, which could leave the industry in regulatory limbo for years. This regulatory ambiguity may continue to temper investor interest in the stablecoin market.
The advent of currencies backed by the dollar that are related to the digital payments landscape is changing it and putting traditional firms like Visa and PayPal up against fierce competition. Stablecoin adoption offers a potential prospect for the expansion of financial services, but regulatory uncertainty and variable levels of stock market enthusiasm highlight the complicated dynamics at work in this developing industry.
