The aggregate market capitalization of the stablecoin market has surpassed $120 billion. More than half of the supply (around $72 billion) is accounted for by the segment leader—Tether (USDT).
Messari analyst Ryan Watkins attributed the rapid growth of the stablecoin sector to the fact that they are \”the best means of storing and moving US dollars around the world\”.
In short, stablecoins are simply a better means of storing and moving dollars around the world.
— Ryan Watkins (@RyanWatkins_) September 17, 2021
According to him, stablecoins are used to move capital between exchanges, as collateral on crypto-derivative platforms, in decentralized finance applications, and for cross-border payments. In Q2 2020, the volume of transactions with these assets exceeded $1.7 trillion — over the 12 months the figure grew 14-fold.
People use stablecoins so much that in Q2 users transacted over $1.7 trillion on blockchains using stablecoins.
That was up 14x in the past year. pic.twitter.com/R4Cv8yixyQ
— Ryan Watkins (@RyanWatkins_) September 17, 2021
Watkins noted that stablecoins are convenient as a means of payment because all that is required is a public address on the blockchain. Their infrastructure runs without interruption while preserving privacy.
In addition, stablecoins are programmable assets, meaning developers can build applications on top of them.
— They offer users stronger autonomy, privacy, and interoperability than existing payments solutions which require KYC and often restrict access
— They’re programmable which allows for developers to trivially build with them and deploy applications with global distribution
— Ryan Watkins (@RyanWatkins_) September 17, 2021
Watkins noted that the US dollar accounts for about 55% of international transactions, hence there is global demand for the American currency, especially outside the United States’ financial system.
He noted that, because of these properties of stablecoins, more US domestic financial institutions are moving transactions onto the blockchain. This move helps reduce cost structures.
Beyond the United States, stablecoins provide individuals and institutions with easy access to the American currency. In his view, these assets could in the future \”capture\” the offshore dollar market. Citing data from the Bank for International Settlements (BIS), Watkins valued the latter at more than $57 trillion.
While the size of the offshore dollar market (dollar deposits held outside the US) is difficult to estimate, data from the BIS suggests it could be over $57 trillion dollars.
It may sound crazy, but this is the market stablecoins are beginning to eat into. pic.twitter.com/o5KvNrbE08
— Ryan Watkins (@RyanWatkins_) September 17, 2021
“Although the offshore dollar market (dollar deposits held outside the United States) is difficult to estimate, BIS data suggests it could be more than $57 trillion. It may seem crazy, but this is the market that stablecoins are beginning to target,” wrote him.
Watkins noted that stablecoins could potentially become a \”big problem\”, hence he understands why regulators are \”watching this market\” closely.
In July, at a meeting of Fed, officials stated that the lack of transparency of stablecoins could threaten financial stability.
Earlier, U.S. Treasury Secretary Janet Yellen called for the swift creation of a regulatory framework regarding stablecoins.
In early September, SEC Chair Gary Gensler highlighted the risk of widespread use of stablecoins, noting the Diem project developed with involvement from Facebook.
Recall that the U.S. Treasury plans to require stablecoin issuers to ensure their free conversion into fiat, according to Bloomberg.