Blockchain-based stablecoins pegged to fiat currencies like the US dollar are gaining increasing systemic importance, according to analysts from research and brokerage firm Bernstein.
Stablecoin issuers including Tether and Circle are now the 18th largest holders of US Treasury bonds, behind only Saudi Arabia and ahead of South Korea. The total value of Tether (USDT) and USD Coin (USDC) held has surpassed $125 billion in US Treasury bonds.
“The stablecoin system remains highly profitable thanks to the revenue from the treasury bonds that issuers hold. For example, Tether recorded a net profit of $5.2 billion in the first half of 2024,” the analysts said.
On-chain stablecoin payment volume has tripled in the past 12 months to $1.4 trillion, with stablecoins accounting for about 50% of total on-chain transaction volume. Monthly active users have hit a new record of around 22 million, and the total number of stablecoin wallets with positive balances is now 120 million. However, “stablecoin usage has decoupled from crypto and is increasingly held for non-crypto purposes,” they noted.
The stablecoin market is also seeing new entrants, with PayPal and Paxos partnering to issue PYUSD, which is close to hitting $1 billion in circulation. Ripple recently announced plans to launch a new stablecoin called RLUSD for cross-border payments, while fintech company Revolut is also reportedly considering entering the stablecoin market, according to a report on Wednesday.
Other drivers of stablecoin growth include providing the ability to save US dollars to international users, expanding the digital dollar beyond US borders, serving as the primary base currency for transactions in the crypto space, allowing users to earn interest on DeFi platforms, and providing a low-fee cross-border payment method, as low as 1 to 2 cents per transaction, according to analysts.
Stablecoin supply hits all-time high
After peaking during the bear market in 2022, when traders began cashing out from volatile digital asset investments, the circulating supply of stablecoins is now back at a record high of nearly $180 billion.
USDT remains the dominant stablecoin with a market capitalization of around $120 billion, followed by USDC with around $35 billion. “Tether’s integration with global offshore exchanges and its use for cross-border payments in non-US markets remain key drivers,” the analysts said, while “Circle (USDC) benefits from its partnership with Coinbase.”
The Ethereum blockchain leads in stablecoin trading volume, accounting for about 45% of total transfer volume, followed by Tron and Solana.
Changing user behavior
In a recent survey of cryptocurrency users conducted by Visa, Castle Island Ventures, Artemis, and Brevan Howard Digital in Nigeria, Indonesia, Turkey, Brazil, and India, about 50% of respondents said they use stablecoins to trade crypto and NFTs. 47% said they use stablecoins to save money in US dollars, 43% to improve conversion rates, and 39% to earn interest.
The survey results show that the use of non-crypto stablecoins is growing in the economy, with the most common use cases including converting currencies, paying for goods or services, and making cross-border transactions.
In particular, younger age groups under 35 are holding a larger proportion of their assets in stablecoins, with 35% of 18- to 24-year-olds in emerging markets holding more than 25% of their portfolios in stablecoins, compared to 17% in the 45-54 age group.
The opportunity to earn higher interest rates is the most common reason for choosing stablecoins over US dollar bank accounts among millennials, followed by greater trust, more stable value and less chance of government interference, according to analysts.