A Bitcoin ATM in San Francisco, California, Monday, December 30, 2024. The Bitcoin rally, sparked by Donald Trump's election victory in early November, is taking a break as the end of 2024 approaches. Photo: David Paul, Bloomberg)
NEW YORK – As Bitcoin's rise above $100,000 has grabbed headlines in 2024, many financial firms have shifted their attention to another type of cryptocurrency, stablecoins, whose price is designed to remain stable, without significant fluctuations.
Major players like Visa, PayPal Holdings Inc. and Stripe Inc. are investing in projects related to stablecoins, which are typically crypto tokens pegged to the value of the U.S. dollar or other traditional currencies.
This sub-sector of the digital asset universe is proving to be a lucrative business, as issuers can invest the reserves backing stablecoins in short-term US Treasuries, offering attractive returns. Unlike Bitcoin and other tokens subject to high volatility, the use of stablecoins as real currencies in transactions continues to gain popularity across the world.
“We have noted significant growth in demand from some of the world's largest companies, which operate in under-exploited payment sectors, such as worker and contractor payments, trade financing and money transfers,” said Rob Hadick, general partner at digital asset investment firm Dragonfly. “There is significant demand from end users receiving US dollars, which can be almost impossible using non-stablecoin rails, but also from senders wanting to bypass the often slow and slow corresponding banking system. expensive, with a high failure rate. »
The coming year is expected to see increased competition in the stablecoin sector, which has a market capitalization of around $205 billion, according to DeFiLlama. While Tether Holdings Ltd. has consolidated its position as market leader in 2024, with a current market capitalization of around $140 billion, challenges to its supremacy loom by 2025.
New European Union rules on crypto-asset markets require all stablecoins listed on centralized exchanges to be issued by an entity with an electronic money license. Circle Internet Financial Ltd., Tether's main competitor, obtained such a permit in July. On the other hand, Tether has not yet made a request, thus exposing itself to the risk of withdrawal from exchange platforms, several of them having already stopped listing USDT. Meanwhile, several American companies are also engaging in this field. Visa has launched a new platform, the Visa Tokenized Asset Platform, allowing banks to issue stablecoins and other tokens.
Financial technology company Revolut is considering issuing its own stablecoin, according to reports published by Bloomberg in September. Stripe, the payments company founded by billionaires Patrick and John Collison, has acquired fintech platform Bridge, which specializes in stablecoin transactions. PayPal already has its own cryptocurrency linked to the dollar, called PYUSD, created in collaboration with Paxos, based in New York.
“Issuing stablecoins represents an attractive business model today,” said Augustus Ilag, investment partner and head of Asia at CMT Digital. “Many players have realized the opportunity this represents, thanks to the success of companies like Circle and Tether. By launching stablecoins, companies are creating a new revenue stream, an attractive asset for those looking to diversify their offerings. »
Since stablecoins are built on blockchains, this reduces transaction costs and improves the overall efficiency of fund movements, Ilag added. Johann Kerbrat, general manager of cryptocurrencies at Robinhood, clarified that his company is collaborating with stablecoin issuer Paxos to be part of an open network for the use of stablecoins, called Global Dollar Network.
“We process a lot of money on the platform, for example between Robinhood and market makers or other entities,” he said. “So we can see that stablecoins have great value. » Of course, stablecoins are not without risks.
TerraUSD, which was an algorithmic stablecoin using a floating-rate parallel currency, Luna, to maintain its fixed value of $1, collapsed spectacularly in 2022. This collapse led to a massive sell-off, causing a loss of 200 billion dollars out of the total value of the cryptocurrency market. Several digital asset companies subsequently declared bankruptcy, in part due to the fallout from Terra's collapse.
More than two years later, there is still no unified federal regulatory regime regarding stablecoins in the United States, despite efforts by lawmakers and regulators to establish a comprehensive framework. In contrast, the European Union implemented new MiCA rules to govern the cryptocurrency industry and set clear guidance on stablecoin regulations, leading to rapid adoption by businesses and start-ups based in Europe.
“European governments want fintechs to operate more like banks and meet Basel-like requirements, which puts them at a disadvantage compared to other banking institutions, as fintechs approach constrained banks,” said Tarun Chitra, general partner at venture capital fund Robot Ventures. “Stablecoins avoid many of these issues, making the process more automated. »
In a context where cryptocurrency markets are gaining renewed interest following Donald Trump's victory in the US elections, many remain optimistic about the continued prosperity of this industry in 2025, after this year's recovery. Stablecoins could represent the easiest way for companies that have not yet ventured into cryptocurrencies to enter the world of digital assets.
“Stablecoins allow them to enter the crypto space without having to worry about the risky aspects of securities and scams,” said Anna Yuan, founder of stablecoin project Perena.
