Original Title: The Trillion Dollar Opportunity
Original Authors: Ryan Barney, Mason Nystrom, Partners at Pantera Capital
Compiled by: Luke, Mars Finance
Stablecoins represent a trillion-dollar opportunity.
This is not an exaggeration.
While cryptocurrencies are often seen as volatile, tokens, and liquidity, the other side of cryptocurrencies is the stablecoins that quietly carry the flag for cryptocurrency adoption. For newcomers, these crypto dollars are pegged 1:1 to the underlying fiat currency, using algorithms (less popular) or reserves (more popular) to maintain the peg.
The share of stablecoins in blockchain transactions has risen from 3% in 2020 to now over 50%. Stablecoins claim to be the killer application of cryptocurrencies, and unlike many cryptocurrencies, stablecoins are essentially non-speculative.
In a short time, stablecoins have demonstrated the potential to become one of the transformative innovations in the cryptocurrency space. 2024 is poised to be a breakthrough moment for stablecoins, with adjusted trading volumes exceeding approximately 5 trillion USD, transaction amounts over 1 billion USD, and nearly 200 million accounts involved.
During the last cryptocurrency bull market, stablecoins achieved remarkable growth, but this time their application has extended beyond the DeFi ecosystem. Over the past few years, stablecoins have demonstrated their core value proposition—seamless cross-border payments, initially achieved through acquiring USD. Consequently, the regions where stablecoins are growing the fastest are emerging markets with high demand for USD.
Stablecoins offer a 10x value proposition compared to traditional payment methods for B2C payments (like remittances) and B2B cross-border transactions.
Cryptocurrency has long been expected to provide solutions for the trillion-dollar cross-border payment market. By 2024, cross-border B2B payments through traditional payment channels are projected to reach approximately 40 trillion USD (excluding wholesale B2B payments) (Juniper Research). In the consumer payment market, global remittance revenues reach hundreds of billions of USD annually. Now, stablecoins provide a means to achieve global cross-border remittance payments through crypto channels.
As the adoption of stablecoins accelerates in the B2C and B2B payment sectors, both the supply and trading volume of on-chain stablecoins have reached historic highs.
The Stablecoin Trio: Better. Faster. Cheaper.
There's an old adage in business: few products can offer better, faster, and cheaper at the same time. Typically, a product can meet two of these conditions simultaneously, but not all three. Stablecoins provide a better, faster, and cheaper way for global fund transfers.
For businesses and consumers, stablecoins provide a value proposition 10 times higher than traditional USD.
Better: Stablecoins are a more accessible product that can be used 24/7, 365 days a year. They can easily facilitate global cross-border transfers and have programmability, making stablecoins superior to fiat currencies.
Faster: Stablecoins are undoubtedly faster, settling instantly instead of requiring T-minus 2 or T-minus 1 days to settle.
Image from BVNK report
Cheaper: The costs of issuing, transferring, and maintaining stablecoins are lower than those of fiat currencies. In 2023, Stripe facilitated over 1 trillion USD in payment volume, with a fee structure starting at 2.9%, plus 30 cents for domestic card transactions. On high-throughput blockchains like Solana or Ethereum L2s like Base, the average cost of stablecoin payments is less than one cent.
Emerging Stablecoin Technology Stack
Despite the evolving stablecoin technology stack, here are several emerging layers:
Merchant Layer – Applications and interfaces originating from retail or commercial transactions.
Stablecoin Coordination Layer – Providers of last-mile on-chain and off-chain services, virtual accounts, cross-border stablecoin transfers, or stablecoin and fiat currency exchange.
Foreign Exchange and Liquidity Layer – Providers of services for exchanging cross-border stablecoins with other USD-pegged stablecoins, fiat currencies, or regional stablecoins.
Stablecoin Issuance Layer – Companies or protocols that offer white-label stablecoins or first-mover stablecoins with differentiated characteristics.
Similar to how cryptocurrency exchanges are emerging in various corners of the world to cater to local participants, we expect various cryptocurrency cross-border applications and processors to arise as they cater to specific stablecoin markets.
Just like traditional finance and payments, building moats in each part of the stack is crucial for expanding beyond the initial value proposition of business opportunities. We have considered which moats are defensible and can be expanded over time at each layer:
· Merchant Layer — The moat is built through owning the flow of stablecoins from users or businesses. This provides opportunities for upselling other services, selling user flows, and owning end-to-end customer experiences. The Robinhood of stablecoins will emerge with a similar strategy.
· Stablecoin Integration — Licenses! Who gets the licenses will gain the most reliable and globally covered at the cheapest price. Will it be developer-friendly? Look at the acquisition of Stripe x Bridge to understand where the moat is and how it forms.
· Foreign Exchange and Liquidity — Liquidity begets liquidity, and flow generates value accumulation. Any participant that can access proprietary liquidity and price it effectively will outperform new entrants that do not have it. This is why some large exchanges serve a significant portion of stablecoin flow for certain major channels today. We also believe that the transition from over-the-counter forex to exchange-based forex and then to on-chain forex will facilitate faster payments and trading at this layer.
· Stablecoin Issuance — Over time, issuance will become commoditized, inevitably leading to the launch of dozens of large brand stablecoins (e.g., PYUSD). As other layers of the stack grow (i.e., merchants, business processes, and liquidity), we expect these layers to have the capacity to launch their own stablecoins, whether it be acquiring yields, building their own branded stablecoins, or creating proprietary stablecoin liquidity and flow.
As the various layers of the stack gradually bundle together, these layers will merge over time. The merchant layer is best suited to aggregate the other layers of the stack, providing more value to end users, increasing profits, and creating more revenue streams. They will have the authority to choose which forex transactions to conduct, which entry and exit channels to own or lease, and which issuers to use.
Moreover, we expect that the issuance of stablecoins will become increasingly common for large fintech companies and e-commerce providers that facilitate significant capital flows. The next generation of neobanks and fintech companies will be defined by stablecoins. Just this month, we heard that major credit card networks like Visa, banks like JPM, and asset management firms like Blackrock are interested in exploring their own stablecoin projects.
Looking Ahead: The Next Decade of the Digital Dollar
The tokenization of the USD is still in its early stages.
Even as stablecoins' MAU reaches historic highs, we believe their adoption will continue as hundreds of millions of individuals interact with stablecoins over the next decade.
Importantly, even amidst fluctuating exchange trading volumes, the number of stablecoin users continues to grow. From bull markets to bear markets, stablecoins have remained dominant, expanding their digital influence.
As cryptocurrencies rebuild the financial system from scratch, stablecoins exist simultaneously, integrating into traditional financial payment networks.
While large companies like Stripe, Visa, and PayPal have entered the stablecoin market, we see a wealth of opportunities for new protocols and companies focused on stablecoins.
Here are some ideas that excite us:
· Stablecoin Neobanks — The advent of mobile devices has created immense value for Neobanks. Crypto neobanks will not only provide top-tier payment channels but will also support next-generation consumer financial applications that aggregate payments, trading, yields, loans, and other core financial services.
· On-Chain Forex — Although most stablecoins are currently pegged to the USD, we anticipate more currencies will go on-chain, thereby promoting the development of the on-chain forex layer. More directly, as a large number of USD-pegged yield stablecoins offer different yields and value propositions, we expect these initial USD-pegged stablecoins will require a forex layer.
· Telegram Payment Track — Telegram provides a native payment wallet, but we also see a unique opportunity to build new payment layers on top of Telegram using new interfaces like TG mini-programs.
· Remittances on the Crypto Track — Remitly, Wise, Intermex, Ria, MoneyGram, Western Union. All remittance companies, each with hundreds of millions to billions of dollars in annual revenue. Remittance companies charge fixed fees, which make sense for low amounts (e.g., charging 6 USD for a 60 USD transaction) or high fees (30-100 bps per transaction). Stablecoins reduce the costs of global remittances and make the process seamless. Money. 'The profit from remittances is the opportunity for stablecoins.' - Jeff 'Stables' Besos
· Global Venmo — Building a P2P track to push Venmo-like functionality globally. Remittances are often one-way flows, while this will serve social commerce use cases in more bidirectional flows.
· Stablecoins support fund management and operations — As the fintech sector expands from PayPal payments, it has created billions of dollars in opportunities across wealth management, personal finance, payroll, corporate spending and expense management, neobanking, financial accounting and reporting, loans/mortgages, and more. Similarly, stablecoins provide an opportunity to rebuild many of these cumbersome processes with a better track supported by stablecoins. In the short term, fund management and operations deal with complex operations, which allows for the value proposition of stablecoins to be disrupted.
Conclusion
Stablecoins represent a trillion-dollar business opportunity. We hope to support founders and visionaries who can see the future potential of stablecoins, unaffected by the financial system.