CashNews.co
As stablecoin adoption expands beyond crypto, the global financial landscape is on the verge of disruption. In the meantime, competition among stablecoins becomes ever fiercer, with new competitors like Ethena and BitGo.
Stablecoins are on the rise. These tokens, backed by assets deemed “stable” – most usually the US dollar – have already evolved into major players in the crypto space. Now they are making inroads into the global financial system, particularly in the money transfer sector.
A recent report by Bernstein highlights this transformation, noting that stablecoin usage has “decoupled from crypto” and is increasingly focused on non-crypto applications. Going even further, the broker claims that stablecoins are becoming “systemically important.”
As interest in stablecoins grows, so does the competition among their issuers. New centralized stablecoins are challenging established leaders Tether and Circle, offering more user perks, while the decentralized ones promise censorship resistance.
Stablecoins disrupt the money transfer industry
Stablecoins have become essential to the crypto industry, initially driving trading by forming the majority of trading pairs. Today, they serve a broader range of purposes, including cross-border payments and savings. According to Bernstein, stablecoin holders outside the U.S. often use these assets as a store of value against their local currencies, with 20% of 18-24-year-olds in emerging markets allocating 25%-50% of their portfolios to stablecoins.
A recent Chainalysis report supports these findings. The leading on-chain analytics firm found that year-over-year growth of stablecoin transactions was higher among small retail (<$1,000), which increased by 30%, and large retail-sized ($1,001-$10,000) transfers, which surged by almost 40%. This growth highlights the increasing real-world applications of stablecoins in low-income and lower-middle-income countries, especially in regions like Sub-Saharan Africa and Latin America.
Indeed, USD stablecoins are now the most cost-effective tools for cross-border payments. Transferring $1,000 on high-speed blockchains like Tron or Solana, or layer 2 solutions built on top of Ethereum, can be completed in seconds for as little as 1 cent. Such efficiency is unmatched in the fiat payments landscape. For instance, transferring $1,000 from the U.S. to the Philippines costs around $13 via online services like Wise and up to $35 through traditional banks like Citi, with transfers taking 1 to 5 banking days (data from Wise and Citi websites). Additionally, these transfers often incur hidden costs related to exchange rates and intermediary fees.
The growing demand for stablecoins is reflected in their market capitalization. After a dip in 2023, stablecoin circulation has returned to an all-time high of $170 billion, and monthly on-chain payment volumes have tripled over the past year to $1.4 trillion in July. As of the time of writing this article, the market cap has already exceeded $180.6 billion. Furthermore, stablecoins have become increasingly significant in the global financial system, ranking as the 18th-largest holders of U.S. Treasuries.
Given these trends, it’s no surprise that the stablecoin market is becoming increasingly competitive.
Rising competition among stablecoins
For years, the stablecoin market has been largely dominated by two major players: Tether, the issuer of USDT, and Circle, which issues USDC. USDT commands an impressive 71% of the stablecoin market with an almost $130 billion market cap. USDC accounts for another 20% with a $36 billion market cap (data: Dune Analytics).
The remaining 9% of the market is a battlefield with over 20 players vying for their share. The most notable contenders include:
DAI, a veteran decentralized over-collateralized stablecoin issued by MakerDAO ($3.3 billion)
FDUSD, a centralized stablecoin issued in 2023 by a subsidiary of Hong Kong-based financial firm First Digital Limited ($2.9 billion)
USDe, a decentralized crypto-backed synthetic dollar issued by the DeFi protocol Ethena in February 2024 and promising censorship resistance ($2.5 billion)
Other stablecoins include the decentralized USDD (issued by TronDAO), FRAX (Frax Finance), and crvUSD (Curve Finance), or else the centralized PYUSD (issued by PayPal).
However, even more players will be joining the stablecoin race. Last Wednesday, one of the biggest crypto custodians BitGo announced its dollar-pegged stablecoin USDS, set to launch in January 2025. It is marketed as “the first open-participation stablecoin to redefine financial freedom” and will enable users to earn rewards by providing liquidity.
In terms of blockchains on which the stablecoins are issued, Ethereum leads with almost 53% of the market, followed by Tron (34.6%), and then BSC, Solana, and Arbitrum (2-3%).
As BitGo asserts, “next-generation finance necessitates next-generation rails.” The blockchain is likely to become these rails, supporting all kinds of financial products. Stablecoins exemplify this development.