While Bitcoin’s (BTC) dramatic rise above $100,000 captured the attention of the financial world in 2024, a different part of the cryptocurrency landscape is quietly benefiting: stablecoins.
Mainstream financial players such as Visa, PayPal, and Stripe are increasingly investing in stablecoin projects—cryptocurrency tokens it is designed to maintain a stable value, which is usually paid in the US dollar or other traditional currencies.
Global Demand for Stablecoins is on the rise
This growing sector of digital assets has proven to be incredibly profitable. Issuers of stablecoins can now invest the reserves backing these tokens into short-term US Treasuries, which offer a favorable yield.
Unlike the volatile nature of Bitcoin and other cryptocurrencies in the industry, stablecoins are accepted around the world transactionswhich provides a sense of credibility amidst the chaos of the crypto markets.
Rob Hadick, a general partner at Dragonfly, a digital-asset venture firm, highlighted the growing demand for stablecoins among large companies operating in underserved payment sectors.
“We have seen significant growth in demand from some of the world’s largest companies involved in global contractor and labor payments, trade finance, and remittances,” he explained.
According to According to Bloomberg, the stablecoin market is poised for increased competition as the total market cap has risen to $205 billion.
USDT for Tether Holdings Ltd. remains the leading player, boasting a market cap of around $140 billion. However, the challenges are increasing as regulatory frameworks evolve.
The European Union’s Markets in Crypto Assets (MiCA) regulations require all stablecoins to be listed. central exchange (CEXs) issued by licensed e-money entities.
Circle Internet Financial Ltd., Tether’s main competitor, received this approval in July, while Tether was still inactive, putting its future in trading at risk.
Companies Seek New Capital Streams Amid Market Volatility
In the US, several companies are entering the stablecoin arena. Visa has launched a Tokenized Asset Platform, which enables banks to issue stablecoins.
Finance a technology company Revolut is exploring the possibility of launching its own stablecoin, while Stripe has acquired Fintech platform Bridge, which specializes in stablecoin transactions.
Augustus Ilag, investment partner at CMT Digital, said, “Stablecoin issuance is an attractive business model today.” The success of companies like Circle and Tether has led many businesses to consider launching their own stablecoins, providing a new source of income and a way to diversify their offerings.
Johann Kerbrat, the general manager of crypto at Robinhood, noted that the company is collaborating with Paxos to create an open network for the use of stablecoins, emphasizing the important value that stablecoins can bring to their platform.
However, the rise of stablecoins is not without risks. The catastrophic failure of TerraUSD in 2022, an algorithmic stablecoin that relied on the same currency Luna to maintain constant valueit serves as a cautionary tale.
The collapse of TerraUSD caused a widespread sell-off in the crypto market, removing $200 billion from the total market value and leading to the bankruptcy of several digital asset companies.
Despite the country’s instability, the regulatory environment for stablecoins in the US remains a mess. Efforts to establish a comprehensive framework have not yet been achieved, and the MiCA of the European Union regulations they pave the way for clearer guidelines and increased adoption among European-based companies.
Tarun Chitra, general partner at Robot Ventures, highlighted the challenges that fintechs face under strict regulations similar to banking in Europe. “Stablecoins avoid many of those problems, automating the process,” he said.
Featured image from DALL-E, chart from TradingView.com