Stablecoins, which are cryptocurrencies pegged to the U.S. dollar, are becoming a threat to traditional financial players like Visa and PayPal. These stablecoins are usually tied one-to-one with the dollar and are integral to the crypto economy. They provide liquidity in crypto trading and are also being used for payments and enabling efficient cross-border transactions.
A recent report from the macro hedge fund Brevan Howard highlights that in 2022, stablecoins settled transactions exceeding $11 trillion on blockchains, a sum nearly on par with Visa’s $11.6 trillion, and surpassing the figures reported by PayPal. Remarkably, over 25 million blockchain wallets are holding some value in stablecoins, with the majority carrying smaller balances. This demonstrates the potential for stablecoins to offer advantages to individuals underserved by conventional financial institutions.
Brevan Howard underscores that the swift rise in stablecoin adoption signifies a significant opportunity for expansion within the payments sector, potentially leading to substantial profits. For instance, Tether, a prominent stablecoin issuer, could amass around $6 billion in profits this year, outpacing even the financial giant BlackRock.
Companies have taken note of this potential, exemplified by PayPal’s decision to introduce its own dollar-backed token, PYUSD, on August 7, 2023. Nevertheless, the response from the stock market to these announcements has been less enthusiastic. Additionally, questions have arisen about the effectiveness of Coinbase Global’s investment in Circle Internet Financial, the entity behind USD Coin.
This muted response could be attributed to the fact that dollar-pegged stablecoins find more favor beyond the borders of the United States, addressing the worldwide demand for dollar-based financial services accessible via the Internet.
Nonetheless, the primary obstacle for stablecoins and their potential beneficiaries lies within the realm of regulation. In an August 10, 2023 report by Todayq News, Congresswoman Maxine Waters expressed concerns regarding the absence of a comprehensive regulatory framework for PayPal’s PYUSD. This indicates the necessity for a clear direction forward that fosters stability and inspires investor confidence.
Until regulatory clarity emerges, the impressive growth potential of stablecoins might remain constrained. While these digital assets hold substantial promise in revolutionizing payment systems and disrupting traditional financial powerhouses, the cautious sentiment in the market underscores the requirement for a balanced approach that addresses both innovation and regulatory oversight.