Payment Use Cases Fuel Increasing Stablecoin Growth
The global stablecoin supply currently stands at over $150 billion, demonstrating new demand for relatively stable digital assets.
The stablecoin market has also grown more competitive. For example, XRP issuer Ripple recently announced plans to launch a United States dollar-backed stablecoin.
Launching a stablecoin is a natural step for Ripple as we bridge the gap between traditional finance and crypto. We have 1/ the years of experience 2/ regulatory footprint 3/ a strong balance sheet and 4/ a network with near global payout coverage, to offer the best of… https://t.co/GlyqhYl9ES
— Brad Garlinghouse (@bgarlinghouse) April 4, 2024
Ripple’s stablecoin will likely compete with the two most dominant stablecoin issuers, Tether (USDT) and Circle (USDC). The supply of Tether’s USDT and Circle’s USDC expanded by nearly $10 billion combined over the past month.
Is The Bull Market Driving Stablecoin Demand?
Interestingly, increasing demand for stablecoins coincides with the current crypto bull market.
Yet while stablecoin growth may be correlated with increasing cryptocurrency prices, industry experts believe demand for digital assets pegged to the U.S. dollar are surging for other reasons.
Austin Campbell, Adjunct Professor at Columbia Business School, told Cryptonews that while there is a correlation between stablecoins and the wider crypto market cap, it has been declining over time.
“It appears that stablecoins are being used independently of crypto trading for payments,” said Campbell.
He added that dollar-backed stablecoins are addressing a broader market segment compared to digital assets solely used for speculation.
Stablecoin Use Cases For Payments On The Rise
Their utility may be increasing as well, as a number of stablecoin payment use cases are coming to fruition.
For example, David Uhryniak, Head of TRON Ecosystem Development, told Cryptonews that an app called Grab – known as the “Uber of Singapore” – recently began accepting USDT on TRON for payments.
“TRC20-USDT holders can now pay for their rides or food delivery directly without converting to fiat currency,” said Uhryniak. “I expect a growing trend where more international e-commerce platforms will integrate with TRON to accept crypto transactions for everyday services.”
According to Uhryniak, the TRON blockchain has become one of the preferred transport layers for popular stablecoins like USDT due to its low transaction fees and fast processing.
“TRON has the highest circulating supply of USDT, at over $54.8 billion,” said Uhryniak. “Since early February of this year, USDT on TRON has been averaging over 2 million transactions daily.”
Jelena Djuric, CEO and Co-Founder of digital asset issuance chain Noble, told Cryptonews that while stablecoins can be used for decentralized finance (DeFi), the platform has recently seen a surge in stablecoins for payments.
“An example of this is being seen with Cypher Wallet, where users can load USDC from Noble and spend those dollars in stores wherever Mastercard is accepted,” said Djuric.
Djuric added that she believes the most interesting stablecoin use cases currently focus on digital dollars.
“Stablecoins are more convenient, efficient and scalable than the traditional financial rails,” she said.
Djuric shared that Noble is currently handling $1 billion of volume per month of USDC transactions from the platform to other Cosmos and Inter-Blockchain Communication Protocol chains.
“We have grown USDC issuance more than most other native issuance chains for the past few months. This represents real adoption by users and Dapp chains that plug into Noble for liquidity,” said Djuric.
Massimiliano Silenzi, CEO of research firm Cryptorefills Labs, told Cryptonews that recent findings from Cryptorefills show almost 80 percent of crypto-shoppers prefer to pay for goods and services with stablecoins versus other cryptocurrencies.
While notable, Silenzi pointed out that due to transaction speeds and fees, only one-sixth of stablecoin payments take place on the Ethereum mainnet.
“The majority of stablecoin payments are dispersed fairly evenly across alternative networks like Polygon, TRON, Solana, and Avalanche as well as Ethereum layer-2s like Optimism and Arbitrum,” said Silenzi. “As a result, when it comes to stablecoin payment networks that are quick, inexpensive, and scalable, there isn’t yet a clear winner.”
Challenges May Hamper Stablecoin Adoption
While it’s notable that stablecoin adoption may be increasing due to real-world payment use cases, regulations and other concerns may slow adoption.
For instance, while stablecoin legislation may get passed this year in the U.S., Senator Elizabeth Warren recently criticized the proposed stablecoin bill.
As Cryptonews previously reported, Warren argues that creating new regulatory frameworks for stablecoins could “amplify and entrench” risks they pose to the American banking sector.
Moreover, David Pope, Commissioner of The Wyoming Stable Token Commission, told Cryptonews that tax rules around stablecoins remain a barrier to adoption as well.
“The IRS views all crypto (including Stablecoins) as property (as opposed to cash),” said Pope. “This means whenever a US person or entity uses a stablecoin for anything, it has to be reported on their tax return (even though there is normally no gain or loss).”
Pope believes that if stablecoins become commonly used, this will likely result in thousands of transactions needing to be documented.
In addition to regulations, Djuric believes that non-crypto natives still struggle with Web3 concepts such as private keys, wallets, on-ramps, bridged versions of the same stablecoins, and more.
“Noble is trying to solve all of these challenges, but it doesn’t happen overnight. Eventually, we should see chain and asset abstraction as secure but highly intuitive wallet interfaces,” she said.
Indeed, these challenges may eventually lead to decreasing demand in stablecoins.
For instance, Paxos’ most recent transparency report on PayPal USD noted the circulation of PYUSD in March totaled $188.5 million. This marks a 39% decrease in PayPal’s stablecoin compared to the previous month.
Ways To Ensure Stablecoin Growth Moving Forward
Challenges aside, Campbell believes that stablecoins will continue to grow as the crypto space matures.
“Stablecoins will probably outgrow DeFi and become a tool for real-world payments around the globe,” he said.
Although adoption may be slow, education, along with retail demand for stablecoins, will ensure growth in the future.
Notably, Tether is already taking steps to provide better stablecoin education.
On April 10, Tether announced a partnership with Coins.ph – a popular digital asset exchange in the Philippines – to promote financial education for blockchain technology, Bitcoin, and stablecoins in the region.
According to a Tether blog post, the educational initiatives being launched will target diverse segments of the Filipino population. This includes finance professionals like bankers and fintech companies, but also overseas Filipino workers seeking efficient remittance solutions.
Pope also believes that as the general public moves through the learning curve, retail demand for stablecoins will increase.
“This all suggests that stablecoins are slowly being adopted,” he said. “But can anyone buy their cup of morning coffee with them yet? Probably very few places accept a wallet transfer for that, but adoption does seem to be moving along.”
