Stablecoins are Shaping the Future of Digital Payments
Emergence of Bitcoin as a Competitor
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Topics Covered
Role and Importance of Stablecoins
Stablecoin Competitive Landscape and Market Share
Regulatory and Economic Impact of Stablecoins
Quick Notes🏃♂️
In the volatile world of cryptocurrencies, stablecoins offer a reliable anchor, blending traditional currency stability with blockchain innovation. The stability and reliability of stablecoins make them a cornerstone of the evolving financial ecosystem.
While in the United States, the use case for these technologies isn’t as crucial in the near term as the systems work reasonably well. However, in countries like Argentina, where the inflation rate has been astronomical, stablecoins provide a reliable store of value.
The competitive landscape for stablecoins is becoming increasingly crowded as more players enter the market. Web2 payment companies are not only competing with each other but also with startups like Tether and Circle, which have been the first movers in this space.
PayPal is positioning its stablecoin, PYUSD, to run on various blockchains and is now available on the Solana blockchain. Solana has also been adopted by other payment companies, including Visa, which launched USDC settlement on the blockchain last fall. PayPal’s focus on Solana shows that PYUSD is positioning itself as a product primed to increase the adoption of stablecoins.
Additionally, PayPal’s global presence positions PYUSD to gain favor within its existing markets, especially in regions with high crypto traction or need.
As stablecoins and Bitcoin compete for dominance in the payment space, the ongoing evolution of crypto technology promises greater utility and integration into the global financial system.
Full Analysis📝
In the volatile world of cryptocurrencies, stablecoins offer a reliable anchor, blending traditional currency stability with blockchain innovation.
Despite not being completely decentralized, stablecoins are acting on the primary use case of Bitcoin, payments.
The stability and reliability of stablecoins make them a cornerstone of the evolving financial ecosystem.
Stablecoins are driving value primarily in emerging global markets globally. This sentiment has been mentioned in a prior CryptoJeter article, “Stablecoins Push Acceleration of Big Brands Into Crypto” and the momentum of crypto payments has continued. However, in the United States, the use case for these technologies isn’t as crucial in the near term as the systems work reasonably well.
In countries like Argentina where the inflation rate has been astronomical, stablecoins provide a reliable store of value.
Before stablecoins, Martin Carrica, founder of Mountain Protocol explains, “You would go and buy dollars in person and you would get a piece of paper. Is that dollar fake or not? You don’t know.”
This existing traction in the stablecoin arena has made incumbents pay attention and compete with the rise of crypto-native alternatives. Therefore, there has been a greater movement for payment companies to explore building systems that leverage web3 technologies.
Payment Giants Embrace Web3
However, Web2 payment companies are not only competing with each other. They are competing with foes that they are not familiar with. These opponents are startups that have been the first movers in this space such as Tether and Circle. Additionally, there have been other stablecoin upstarts like Ethena which have also risen into the stablecoin revolution.
Tether's USDT remains the dominant stablecoin, with a substantial market share and widespread adoption across various blockchain networks. Tether has a market cap of $111 billion, which accounts for just over 70% of the total stablecoin market capitalization. Tether tallied an all-time high net profit of $4.52 billion in the first quarter, according to an auditing firm BDO.
TRON leads in transaction volume with a 78% share, due to its low costs and high availability on exchanges, followed by Polygon. Ethereum, though lower in transaction count, handles higher-value transfers and has users holding USDT for longer periods, indicating its use as a stable store of value. On chains like Optimism and Arbitrum, USDT is used for frequent transactions, likely in DeFi applications.
With those staggering profit numbers and dominant market share, Tether is the Goliath in the stablecoin race.
Circle’s USDC has reached a 20% market share in the stablecoin market. While Tether’s market share is larger, the amount of USDC transactions has flipped Tether at the end of 2023. Additionally, the brand of USDC seems to focus on regulatory compliance which may lead to more institutions adopting the stablecoin.
Understanding the market opportunity has led to more intrigue from payment companies. PayPal is positioning its stablecoin, PYUSD, to be able to run on various blockchains. PYUSD is now available on the Solana blockchain, a part of PayPal's broader strategy to integrate cryptocurrency into its services. Solana has also been adopted by other payment companies, including Visa, which launched USDC settlement on the blockchain last fall. PayPal’s focus on Solana, which has received a ton of buzz this cycle, shows that PYUSD is positioning itself as a product primed to increase the adoption of stablecoins.
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Bitcoin Gains Traction in Emerging Markets
PayPal expanding to Solana shows that they have a pulse on the crypto ecosystem and are willing to explore less mature technologies. Solana seems to have also pushed to attract incumbent payment companies. PayPal will likely seek other partnership opportunities with companies in web3 to ensure that it maintains its user experience quality.
Additionally, PayPal is available worldwide which positions PYUSD to gain favor within its existing markets. Markets with high crypto traction or need can leverage PayPal for the full cycle of payments. Thus, as PayPal continues to add new merchants, business owners who receive payment in a currency suffering from hyperinflation may be inclined to accept PYUSD for payment to maintain the value of their earned revenue.
Moreover, PayPal as an established relationship with US regulators who post FTX, has generally taken a very aggressive stance against crypto native companies. That pre-existing relationship with regulators puts them in a better position to penetrate the US market in an unclear regulatory environment. PayPal’s merchant network creates the opportunity to adopt PYUSD, making instant revenue capture possible without the fees paid to credit card providers.
Tether has already taken strides to address its perception of not being compliant. CZ, founder of Binance wrote, “The crypto market has matured and may have stepped into a new phase where “compliance is super important”. With this in mind, Tether may choose to be the stablecoin that is DeFi’s companion as that technology doesn’t have as much stringent regulation. The other option is to try and get institutions to buy into a strategy that adheres to the highest level of regulatory compliance. Doing so in the US will face challenges as the current administration seeks to take down crypto giants. The SEC will likely feel even more empowered after President Joe Biden sided with the SEC by vetoing bill SAB121.
With the uncertain regulatory overhang and the entrance of incumbents into the stablecoin space, one may ask about the viability of Bitcoin payments. El Salvador has gone all in on Bitcoin and other nations are considering doing the same. Argentina’s president Javier Milei and El Salvador’s president, Nayib Bukele appear to have a friendly relationship as both have an affinity for Bitcoin and believe it can revolutionize their economies. It was reported that Argentina’s financial authorities met El Salvador’s National Commission of Digital Assets to exchange knowledge of crypto adoption technology. President Bukele has also started to create U.S. institutional allies as he has developed a relationship with Cathie Wood, founder of Ark. Together, they have explored points of collaboration to examine Bitcoin's (BTC) potential to bolster the nation's capital markets and foster technological advancements. This May showed the utility of Bitcoin transactions as there were multiple transaction records broken globally. This may signal Bitcoin’s ascension from being viewed as only a store of value.
By taking note of the Bitcoin progression and acceptance among emerging nations like El Salvador and Argentina, Stablecoin’s greatest competition may come from Bitcoin. It is feasible that these two nations could set alliances and create currencies that have Bitcoin as their reserves, or work with organizations like Strike to make bitcoin payments fast and usable.
The fact that we can even have this discussion is a good thing. For crypto to evolve as an industry, there has to be utility and payments are one of the fundamental ways that people can leverage the technology.