Authors: Ryan Barney and Mason Nystrom, Partners at Pantera Capital.
Compiled by: 0xjs@Golden Finance
Stablecoins represent a trillion-dollar opportunity.
This is not an exaggeration.
While cryptocurrencies are often perceived as volatile, tokens, and liquid, stablecoins represent a quieter side that champions crypto 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 proportion of stablecoins in blockchain transactions has risen from 3% in 2020 to now over 50%. Stablecoins make a case for being the killer application of cryptocurrency, and unlike many cryptocurrencies, stablecoins are essentially non-speculative.
In a short time, stablecoins have demonstrated the ability to become one of the transformative innovations in the cryptocurrency space. 2024 will be a breakthrough moment for stablecoins, with adjusted transaction volumes exceeding approximately $5 trillion, transaction amounts surpassing $1 billion, involving nearly 200 million accounts.
During the last cryptocurrency bull market, stablecoins experienced remarkable growth, but this time, the application of stablecoins has extended beyond the DeFi ecosystem. Over the past few years, stablecoins have demonstrated their core value proposition - seamless cross-border payments, initially achieved by acquiring dollars. Accordingly, the fastest-growing regions for stablecoins are emerging markets with high demand for dollars.
Stablecoins provide a tenfold value proposition over traditional payment methods for B2C payments (like remittances) as well as B2B cross-border transactions.
Cryptocurrencies have long been expected to provide solutions for the trillion-dollar cross-border payments market. By 2024, cross-border B2B payments through traditional payment channels are expected to reach approximately $40 trillion (excluding wholesale B2B payments) (Juniper Research). In the consumer payment market, global remittance revenue can reach hundreds of billions of dollars annually. Now, stablecoins provide a means to achieve global cross-border remittance payments through crypto channels.
As the adoption of stablecoins in B2C and B2B payment sectors accelerates, the supply and transaction volume of on-chain stablecoins have reached historical highs.
There's an old saying in business: few products can offer better, faster, and cheaper at the same time. Typically, products can meet two of those conditions simultaneously, but not all three. Stablecoins provide a better, faster, and cheaper way to transfer money globally.
For businesses and consumers, stablecoins provide a value proposition that is ten times higher than traditional dollars.
Better: Stablecoins are a product that is easier to access, available 24 hours a day, 365 days a year. They can be easily transferred globally, and their programmability makes stablecoins superior to fiat currencies.
Faster: Stablecoins are undoubtedly faster, allowing for immediate settlement rather than requiring T-minus 2 or T-minus 1 days to settle.
Image from BVNK report.
Cheaper: The issuance, transfer, and maintenance costs of stablecoins are lower than those of fiat currencies. In 2023, Stripe facilitated over $1 trillion 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 stablecoin payment cost is less than one cent.
Despite the ongoing evolution of the stablecoin stack, several new layers have emerged:
Merchant layer - Applications and interfaces that initiate retail or commercial transactions.
Stablecoin orchestration - Providers of last-mile entry and exit channels, virtual accounts, cross-border stablecoin transfers, or stablecoin-to-fiat exchanges.
Forex and liquidity - Providing cross-border stablecoin exchanges with other USD-pegged stablecoins, fiat currencies, or regional stablecoins.
Stablecoin issuance - Companies or protocols offering white-label stablecoins or first-party stablecoins with differentiated features.
Similar to how cryptocurrency exchanges have surged to cater to local participants around the world, we anticipate that various cryptocurrency cross-border applications and processors will emerge as they cater to specific stablecoin markets.
Just like traditional finance and payments, building moats at each part of the stack is crucial for expanding business opportunities beyond the initial value proposition. We have considered which moats are defensible and can expand over time at each layer:
Merchant layer - The moat is built by owning the stablecoin flow of users or businesses. This provides opportunities for upselling other services, selling user traffic, and owning the end-to-end customer experience. The Robinhood of stablecoins will emerge with a similar strategy.
Stablecoin integration - Licenses! Whoever gets the license will gain the most reliable and global coverage at the lowest cost. Will it be developer-friendly? Look at the acquisition of Stripe x Bridge to understand where the moat is and how it forms.
Forex and liquidity - Liquidity generates liquidity, and traffic generates value accumulation. Any participant capable of acquiring proprietary liquidity and effectively pricing it will outperform new entrants without it. That’s why some large exchanges today service most of the stablecoin traffic for certain major channels. We also believe that the transition from OTC-style forex to exchange-style forex to on-chain forex will accelerate this layer's faster payments and transactions.
Stablecoin issuance - Over time, issuance will become commoditized, inevitably leading to the launch of dozens of major brand stablecoins (e.g., PYUSD). As the other layers of the stack (i.e., merchants, business processes, and liquidity) grow, we expect these layers to be capable of launching their own stablecoins, whether for revenue generation, building their branded stablecoins, or creating proprietary stablecoin liquidity and traffic.
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, thereby providing more value to end users, increasing profits, and creating additional revenue streams. They will have the right 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 large credit card networks like Visa, banks like JPM, and asset management companies like Blackrock are interested in exploring their own stablecoin projects.
The tokenization of the dollar is still in its infancy.
Even as stablecoin MAUs reach historical highs, we believe that with hundreds of millions of people interacting with stablecoins over the next decade, adoption will continue.
Importantly, even amidst fluctuating exchange trading volumes, the number of stablecoin users continues to grow. From bull markets to bear markets, stablecoins dominate and expand their digital influence.
As cryptocurrencies rebuild the financial system from scratch, stablecoins also exist simultaneously and integrate into traditional financial payment networks.
While large companies like Stripe, Visa, and PayPal have entered the stablecoin market, we see a plethora of opportunities for new protocols and companies focused on stablecoins.
Here are some ideas that excite us:
Stablecoin neobanks - The emergence of mobile devices has provided immense value to neobanks. Crypto neobanks will not only offer first-class payment channels but will also support the next generation of consumer financial applications that aggregate payments, transactions, yields, loans, and other core financial services.
On-chain forex - Although most stablecoins are currently pegged to the US dollar, we expect more currencies to go on-chain, thereby driving the development of an on-chain forex layer. More directly, as a significant number of dollar-pegged yield stablecoins offer different yields and value propositions, we expect these initially dollar-pegged stablecoins to require an forex layer.
Telegram payment track - Telegram offers 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 annual revenues in the hundreds of millions to billions of dollars. Remittance companies charge fixed fees, which are meaningful for low amounts (e.g., $6 for a $60 transaction) or high fees (30-100bps per transaction). Stablecoins reduce the cost of global remittances and make the processes seamless. Money. "Remittance profits are the opportunity for stablecoins." - Jeff "Stables" Besos.
Global Venmo - Building a P2P track that extends Venmo-like functionality globally. Remittances are typically one-way flows, whereas this will serve social commerce use cases in a more two-way flow.
Stablecoins support fund management and operations - as the fintech sector expands from PayPal payments, it has created billions of dollars in opportunities in areas such as wealth management, personal finance, payroll, business expenses and expense management, neobanking, financial accounting and reporting, lending/mortgages, etc. Similarly, stablecoins present an opportunity to reconstruct many of these cumbersome processes with better tracks supported by stablecoins. In the short term, fund management and operations must deal with complex operations, which allows stablecoins' value propositions to be disrupted.
Stablecoins represent a trillion-dollar business opportunity. We hope to support founders and visionaries who can see the future prospects of stablecoins unaffected by the financial system.
