Cryptocurrencies that are pegged to the dollar are becoming an increasing threat to major payment processors like Visa and PayPal. This emerging trend highlights both the potential in digital payments and the market’s failure to recognize its significance.
The Rise of Stablecoins
Stablecoins, which are typically tied to the value of the U.S. dollar, serve as a crucial foundation for the crypto economy. Tether, the third-largest cryptocurrency by market capitalization after Bitcoin and Ether, is a prime example of a stablecoin. These tokens are often backed by cash or short-term Treasuries and have historically provided liquidity in crypto trading. However, they are now witnessing a surge in their usage for payments.
Stablecoin Usage Soaring
According to a report from macro hedge fund Brevan Howard, stablecoins settled over $11 trillion on the blockchain in 2022, surpassing the volumes processed by PayPal and approaching Visa’s volume of $11.6 trillion. This highlights the significant role stablecoins are playing in the financial landscape. More than 25 million blockchain wallets currently hold more than $1 in a stablecoin, with 80% of these wallets holding $100 or less. The sheer number of small-dollar stablecoin holdings indicates the potential for stablecoins to provide global financial services to customers who may not have access to traditional financial institutions.
The Lucrative Potential
This explosion in stablecoin usage reveals the vast opportunities for growth in the payments sector. It is estimated that Tether, the issuer of the aforementioned stablecoin, could earn nearly $6 billion in profit this year. This projection exceeds the earnings expectations for BlackRock, showcasing just how lucrative the stablecoin business model can be. Tether’s strategy of earning interest on the deposits backing its token has proven to be highly successful.
The rise of stablecoins pegged to the dollar presents a unique threat to established payment processors such as Visa and PayPal. These digital currencies not only serve as an essential component of the crypto economy but are also increasingly being used for everyday transactions. Their significant usage and potential for global financial inclusion highlight the need for traditional financial institutions to adapt to this evolving landscape. As the payments space continues to expand, it presents a lucrative opportunity for those willing to embrace the potential of cryptocurrencies.
The Untapped Potential of Stablecoins
While companies are starting to recognize the opportunity that stablecoins present, the stock market and analysts remain cautious. This hesitation could be due to the fact that dollar stablecoins have gained more popularity outside of the United States, rather than within it.
PayPal’s Move into Stablecoins
PayPal recently made headlines with its announcement to launch its own dollar-linked token. As a reputable fintech company with an established crypto business and widely used payments platform, PayPal seemed well-positioned to enter the stablecoin market. However, despite an initial boost in stock value, the company’s shares have since declined by 4%.
Coinbase’s Strategic Investment
Crypto broker Coinbase Global also made a significant move by acquiring a minority stake in Circle Internet Financial, the issuer of USD Coin, the second-largest stablecoin. Some analysts question whether this is merely a desperate attempt to revive interest in stablecoins.
Global Adoption and Value Proposition
Contrary to expectations, stablecoin usage has experienced rapid growth on a global scale. The value proposition of stablecoins lies in their ability to provide basic, dollar-based financial services to individuals with internet access. This global appeal may explain the lukewarm response from U.S. readers who may not fully grasp the benefits of stablecoins.
One of the major hurdles that stablecoins face is regulation, or rather, the lack thereof. While U.S. lawmakers and regulators have shown interest in regulating stablecoins, progress has been slow and it could be years before there is any clarity in this area. This regulatory uncertainty is likely to deter investors from fully committing to the sector.
In conclusion, while there is untapped potential in stablecoins, companies must navigate through regulatory obstacles and address misconceptions surrounding their value proposition. Only then can stablecoins truly gain traction as a mainstream financial solution.