I notice that cryptocurrency is attracting increasing attention, not only from investors but also from new capital flowing into the market. However, where is this growth coming from? Is it due to the number of new users joining, or simply that current investors are trading more actively? Whatever the answer, one thing I am sure of is: cryptocurrency is gradually asserting its position in the global financial ecosystem.
Stablecoin Hits 200 Billion USD: New Capital is Flowing In
I think one of the clearest evidence of the development of cryptocurrency is the explosion of stablecoins. For the first time in history, the total assets under management (AUM) of stablecoins have exceeded 200 billion USD – an important milestone.
Fiat capital is shifting strongly: The extremely attractive interest rates on DeFi protocols are attracting a large amount of new capital:
16% interest rate for USDC on AAVE.
22% interest rate for USDS on Drift.
However, I realize a reality that stablecoins are still scarce, especially when looking at the increasing liquidity demand. This is a clear sign of the large gap between cryptocurrency and traditional finance. Currently, there are still not enough people transferring money from bank accounts to self-custody cryptocurrency wallets to meet the market demand.
Big Questions About Stablecoins
Should Circle increase the supply of USDC to reduce borrowing interest rates below 10%?
Should the fractional reserve model be tested to meet liquidity demands?
These questions highlight the need for further improvements and expansions to create balance in the stablecoin ecosystem.
User Activity: Primarily Still Trading
I observe that most users in the current cryptocurrency market are still focused on trading activities. Recent data has clarified this:
Total trading volume on centralized exchanges (CEX) in November: 10 trillion USD.
3 trillion USD from spot trading.
7 trillion USD from derivative trading.
Trading volume on decentralized exchanges (DEX): 378 billion USD.
Despite reaching a record high, this figure remains quite modest compared to CEX.
This shows that current users still prioritize speed, low costs, and the convenience of centralized exchanges over the decentralization provided by blockchain. This is a point that needs improvement if we want to promote DeFi's stronger development in the future.
Comparison with Traditional Finance: How is Cryptocurrency Growing?
I think to better understand the impact of cryptocurrency, it needs to be placed in the context of traditional finance. For example:
Nasdaq, one of the largest exchanges in the world, recorded a spot trading volume of 6.3 trillion USD in the same month.
The trading volume of cryptocurrency reached 10 trillion USD, indicating that this sector is no longer just a "small corner" in global finance.
Although I know that part of the trading volume of cryptocurrency is inflated by arbitrage activities, this figure still clearly demonstrates the strength and scale of the industry.
Remaining Challenges
Despite many positive signals, cryptocurrency still faces some major challenges that I believe need to be addressed:
1️⃣ Stablecoin Liquidity is Still Insufficient
The high interest rates on DeFi protocols indicate that demand far exceeds the current supply of stablecoins.
If the liquidity issue is not addressed, the development of DeFi and related applications will be hindered.
2️⃣ Innovation in DeFi
Although the trading volume is large, transitioning users from CEX to DEX remains a difficult challenge.
Decentralized protocols need to improve user experience to attract more investors.
3️⃣ Connecting with Traditional Finance
Currently, transferring money from bank accounts to crypto wallets is still complex and lacks convenience.
To attract larger cash flows, more effective bridges need to be created between these two ecosystems.
Conclusion: Crypto is Shaping the Future of Finance
I believe that cryptocurrency has made significant strides in asserting its place in global finance. Indicators like the stablecoin flow exceeding 200 billion USD or the trading volume of 10 trillion USD have shown the strong influence of this sector.
However, to progress further, I believe the cryptocurrency industry needs to address challenges regarding liquidity, user experience, and connection to traditional finance. These are key factors that help scale up and promote sustainable market development.
Cryptocurrency is no longer a temporary "frenzy." It is gradually becoming an indispensable part of the global financial ecosystem. We are living in the early stages of a financial revolution – and I believe this is just the beginning. 🚀