Bernstein researchers predict that the market value of stablecoins will increase by 2,140% in the next five years, reaching US$2.8 trillion, and the current market value is approximately US$125 billion. The prediction comes as stablecoins are increasingly gaining traction from crypto and non-crypto companies, with PayPal becoming the latest giant to join the space.

Bernstein noted in a new research report that the global stablecoin market is expected to reach a market value of $2.8 trillion within the next five years. Considering that the stablecoin market is currently worth approximately $125 billion, achieving this goal would mean a staggering 2,140% growth over the forecast period.

Bernstein believes that the integration of stablecoins into consumer platforms is expected to be a major growth catalyst for this type of digital asset. This is because this integration enables the stablecoin to attract more users and drive its distribution beyond crypto-native platforms.

Currently, the stablecoin space is dominated by Tether USDT, with a market capitalization of over $83 billion at the time of writing. It is followed by USDC and DAI with market capitalizations of $3.5 billion and $146 million respectively. While individuals also use USDC, it is more common among enterprises because it provides an open source smart contract that allows other companies to develop their blockchain products.

At the same time, algorithmic stablecoins (stability maintained through on-chain algorithms and mechanisms rather than relying on fiat currency collateral) have declined in popularity in recent times. The contagious collapse of the Terra ecosystem last year was one of the main factors contributing to this decline.

While stablecoins are expected to experience growth in the coming years, their trajectory may face challenges. Central bank digital currencies (CBDCs) could become a serious contender.

This is because CBDC is a government-issued digital currency that has specific advantages similar to stablecoins, while receiving the credibility and regulatory support of the country’s central bank.

Currently, China is leading the global race for CBDC, and the country is continuously working to promote the adoption of the digital yuan. Meanwhile, more central banks have recently joined the CBDC bandwagon, including Japan, South Korea and Russia.