After a year and a half of challenges, the stablecoin market is poised for growth once more. Get Sygnum’s Crypto Market Outlook 2024 for more insights into key sectors and trends for the year ahead.
Initially created to facilitate fiat/crypto trading without the friction of actual conversions, stablecoins became the first truly viral use case of crypto as an efficient global payment mechanism. Stablecoin settlement volumes already match Visa and dwarf PayPal.
However, stablecoins frequently come under attack as their collateral is questioned or withdrawn – such as in early 2023 during the US banking crisis. Non-fiat backing (via other types of assets or an algorithm) poses risks of insufficient collateral and creates an attack surface. Meanwhile, fiat backing is at the mercy of the very institutions stablecoins compete with.
Governments and regulators naturally wield tremendous influence over the trajectory of the stablecoin market, as it is their national currencies that stablecoins are pegged to. With nearly every country working on CBDCs, it appeared for a while that stablecoins might be disadvantaged in favour of CBDC projects. However, with the lack of user interest in, or push back against, CBDCs, stablecoins seem to be favoured as the next best option. Stablecoin regulation is advancing around the world and the stablecoin market has started growing again.
This is very positive for this powerful crypto use case, however, there is also pressure from governments to introduce points of centralisation by requiring data sharing and surveillance or proposing that stablecoins settle on a private ledger or hold their deposits with the central bank as the only allowed backing. Leading stablecoin Tether recently agreed to voluntary secondary market controls to freeze wallets associated with US-sanctioned individuals and entities.
Meanwhile, further trends support the growth of the stablecoin market, such as experimentation at the cross-section of stablecoins and tokenisation with yield-bearing stablecoins and tokenised bank deposits. Another development expected to accelerate growth is the increasing number of traditional financial institutions and payment providers launching or planning to launch their own stablecoins. Examples include PayPal, Japan’s largest bank MUFG or Societe Generale.
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