The Rise of Stablecoins: A Game-Changer for the Global Financial System
Stablecoins Becoming a Crucial Component of the Global Financial System
A recent report by Bernstein has highlighted the increasing importance of stablecoins in the global financial system. According to the report, stablecoins have become the 18th-largest holders of U.S. government debt, with their circulation reaching an all-time high of $170 billion.
What are Stablecoins?
Stablecoins are a type of cryptocurrency designed to maintain a steady value and are usually pegged to the U.S. dollar, although some other currencies and assets such as gold are also used. This allows users to store value in a digital format while minimizing the risks associated with price volatility.
The Growing Popularity of Stablecoins
After experiencing a dip in supply in 2023, stablecoin circulation has now returned to an all-time high of $170 billion. Moreover, monthly payments volume on-chain has tripled in the last 12 months, reaching a staggering $1.4 trillion in July. This rapid growth is attributed to the increasing adoption of stablecoins by international users who require access to USD savings beyond the U.S.
The Role of Stablecoins in Cross-Border Payments
Stablecoins are also being increasingly used for cross-border payments. According to Bernstein, "USD stablecoins on crypto rails are now the cheapest cross-border payments rails." This means that users can transfer large amounts of money across borders at a minimal cost. For instance, transferring $1,000 on layer 2s can be done as low as 1 cent.
Layer 2 Blockchains: The Key to Scaling and Speed
To understand how stablecoins are facilitating cross-border payments, it is essential to grasp the concept of layer 2 blockchains. A layer-1 blockchain refers to the base layer or underlying infrastructure of a blockchain. Layer 2s, on the other hand, are separate blockchains built on top of layer 1s that aim to improve scaling and speed.
The Increasing Use of Stablecoins among Younger Generations
Bernstein’s report also highlights the growing adoption of stablecoins by younger generations in emerging markets. A staggering 20% of 18-24-year-olds in these regions hold between 25%-50% of their portfolios in digital assets like stablecoins. This trend indicates that younger people are increasingly recognizing the value and potential of stablecoins as a store of value.
The Growing Integration with Payments and Fintech Companies
Stablecoins are also witnessing increased integration with payments and fintech companies, such as PayPal (PYPL), MercadoLibre (MELI), and Grab (GRAB). This collaboration is expected to further boost the adoption and usage of stablecoins in the global financial system.
Conclusion
The report by Bernstein underscores the growing importance of stablecoins in the global financial system. With their increasing circulation, adoption, and integration with payments and fintech companies, it is clear that stablecoins will continue to play a crucial role in facilitating cross-border payments and providing access to USD savings beyond the U.S.
Read More: Tether-Issued Stablecoin USDT’s Market Share Grows to 75% as Market Cap Tops $118B
Key Takeaways:
- Stablecoins have become the 18th-largest holders of U.S. government debt.
- Stablecoin circulation has reached an all-time high of $170 billion.
- Monthly payments volume on-chain has tripled in the last 12 months, reaching $1.4 trillion in July.
- Stablecoins are increasingly being used for cross-border payments.
- Layer 2 blockchains have improved scaling and speed, making stablecoin transactions cheaper and faster.
References:
- Bernstein Report
- Tether-Issued Stablecoin USDT’s Market Share Grows to 75% as Market Cap Tops $118B