Stablecoin and Asset Management: A Global Transformation
Money is not just coins, banknotes, or credit cards. These are merely forms, not functions. Money is generally used as a tool for measuring equal value and serving as a medium of exchange. Money will eventually turn into data made up of letters and numbers, appearing as orderly energy pulses, flowing globally at the speed of light through a multitude of diverse paths with extremely low costs via the electromagnetic spectrum.
Stablecoins, as tokenized representations of fiat currency circulating on the blockchain, have undoubtedly become the “killer app” of the crypto market. Currently, there are over $160 billion worth of stablecoins in circulation, significantly higher than the billions in 2020. Every month, over 20 million addresses engage in stablecoin transactions on public blockchains. In the first half of 2024, the value of stablecoin settlements exceeded $2.6 trillion.
Compared to existing payment systems, stablecoins offer significant advantages, including transparent ledgers, immediate settlement, self-custody of funds, on-chain programmability, and interoperability. While initially used by traders and cryptocurrency exchanges as collateral or trading mediums, stablecoins have now broken through into the broader global economy, becoming widely adopted.
Current Status of Stablecoins
Today, global users value the ability to directly hold fiat currency (primarily USD-backed stablecoins) rather than relying on unreliable or inaccessible bank accounts. Stablecoins are also used for cross-border payments, wages, trade settlements, and remittances. There has been a growing number of yield-bearing products based on stablecoins, whether through native interest-bearing stablecoins or decentralized DeFi protocols. In emerging markets, the adoption of stablecoins for payments, currency substitution, and earning high-quality yields is accelerating.
Given the difference in activity levels between stablecoins and the crypto market cycle, it is clear that stablecoin adoption is no longer solely serving crypto users or asset trading use cases.
If stablecoins were only used for settlement between traders and exchanges, the volume of settlements, number of transactions, and monthly active addresses would largely correlate with the crypto market cycle. However, the relatively subdued performance of exchange volumes in 2022–2023 highlights that stablecoins are being used for real-world purposes beyond speculative use.
Stablecoins have indeed seen growth in non-crypto use cases, especially in emerging markets. They are being used for currency substitution (to escape local currency volatility or devaluation), as a substitute for dollar-based bank accounts, for B2B and consumer payments, for yield generation products, and trade settlements. In countries where USD banking services are absent or difficult to access and in high-inflation nations, stablecoins are particularly attractive.
Stablecoin Market Growth
Since 2017, the total supply of stablecoins has grown rapidly, from under $1 billion to a peak of around $192 billion in March 2022 before the collapse of Terra’s UST and subsequent credit tightening. This tightening suppressed native crypto yields, lowered trading volumes, and harmed the balance sheets of crypto-native companies. After the credit crisis eased, the supply of stablecoins began to recover in December 2023, as major crypto assets started to rise ahead of the approval of the Bitcoin ETF in the U.S. Notably, despite the sell-off in crypto assets in 2022 and 2023, and the decline in exchange trading volumes, the settlement value of stablecoins has remained steadily increasing.
This again shows that stablecoins have attracted a new set of users who are interested in using them for more than exchange settlements. As of now, the most popular blockchains by settlement value are Ethereum, Tron, Arbitrum, Base, BSC, and Solana.
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Dollarization of Stablecoins
When comparing the settlement volume of stablecoins to native crypto assets, a “dollarization” story emerges. Historically, Bitcoin and Ethereum have been the primary transaction mediums on public blockchains, but stablecoins — almost entirely pegged to the USD — have steadily gained market share. Today, stablecoins account for approximately 50% of all value settled on public blockchains, having previously reached 70%.
Stablecoins remain tightly linked to the U.S. dollar, with the second most popular stablecoin currency being the euro. While there are stablecoins pegged to currencies such as the Turkish lira, Singapore dollar, and Japanese yen, none of these currencies have stablecoins pegged to them with a market cap of over $100 million.
This means that when individuals in emerging markets use USD-pegged stablecoins, they are indirectly purchasing U.S. debt instruments, such as short-term Treasury bonds. Regulators in countries with higher cryptocurrency penetration are concerned that if the dollarization of crypto assets continues to rise, it could pose risks to their local currencies.
Why the overwhelming dollarization of stablecoins remains a significant question is intriguing. The USD is the global reserve currency, but in no other usage category does the USD dominate as it does with stablecoins. While stablecoins backed by alternative currencies have existed for years, they have not gained significant attention. The dominance of USD-backed stablecoins likely reflects the fact that most jurisdictions have not placed barriers to the use of USD-backed stablecoins, and users prefer the most liquid tokens like USDT and USDC. Additionally, the USD’s continued strength against most other sovereign currencies is a major motivator for crypto users to favour USD-backed stablecoins, even outside of the U.S. Whether regulation will hinder USD stablecoins and encourage the growth of local currency-backed stablecoins remains to be seen.
The Inevitable Evolution of Stablecoins
Stablecoins have moved far beyond being mere tools for crypto asset investment and trading and are now becoming increasingly integrated into the global economy. Among crypto users, 47% list saving in USD as their goal for using stablecoins, 43% mention effective currency exchange, and 39% cite yield generation. While access to crypto exchanges remains the top use case for respondents, long-tail or ordinary (non-crypto) economic activities are also clearly emerging.
When asked about non-crypto stablecoin activities, the most popular uses for stablecoins are currency substitution (69%), followed by payments for goods and services (39%), and cross-border payments (39%). Clearly, in the countries surveyed, stablecoins have evolved from simple trading collateral to a general-purpose digital dollar tool. Furthermore, nearly all (around 99%) of stablecoins reference the U.S. dollar.
In discussions about U.S. stablecoin regulation, one cannot overlook the fact that many individuals and companies in emerging markets rely on these networks for savings, cross-border payments, remittances, and corporate cash management. In almost all surveyed countries, these stablecoins are increasingly serving as an alternative to scarce USD banking services. When considering the benefits of stablecoins, the potential benefits for billions of users in emerging markets who efficiently access alternative hard currencies must have a place in the conversation.
Stablecoins and Asset Management
The relationship between stablecoins and asset management is becoming increasingly evident. In regions where access to traditional financial systems is limited or unreliable, stablecoins offer individuals and businesses a powerful alternative. Not only do they provide an avenue for wealth preservation and cross-border transactions, but they also create opportunities for innovative financial products in asset management.
Stablecoins allow users to diversify their portfolios into digital assets that offer stability through pegging to the USD, a currency widely recognized as a safe haven. This has made stablecoins an attractive tool for asset management, both for institutional and retail investors. Additionally, the tokenization of assets using stablecoins allows for broader access to global markets, making it easier to manage assets across borders.
The integration of stablecoins into asset management ecosystems - whether through DeFi protocols or traditional financial institutions - represents a transformative shift in global finance. Backed by traditional assets like the U.S. dollar, stablecoins are revolutionizing how individuals and organizations manage wealth, savings, and cross-border transactions. In line with this trend, CipherBC is planning to support USDA, further expanding the possibilities for digital finance.