Visa vs. stablecoins: are they really competing?

Is Visa’s report on stablecoins an objective analysis and who is behind the majority of transactions, if not the actual users?

Stablecoins, cryptocurrency’s promise of stability and utility, face a serious challenge: their actual use. A recent study by Visa and Allium Labs found that more than 90% of stablecoin transactions are not from real users.

According to Visa Head of Crypto Cuy Sheffield, as of April 24, total transactions involving stablecoins over the past 30 days have reached a whopping $2.65 trillion.

However, only a portion ($265 billion) was determined to originate from “organic payment activities”; This reveals a large gap between reported and actual usage.

Despite this discrepancy, the study showed a steady increase in the number of monthly active stablecoin users and continued interest in these assets.

This begs the question: If the majority of transactions are not conducted by real users, who is conducting them and what could this mean for the crypto market?

What’s really going on?

Stablecoins are cryptocurrencies designed to achieve stable value by pegging them to an underlying asset, usually a fiat currency such as the US dollar. This stability makes them attractive for a variety of purposes, including trading, remittances and day-to-day transactions.

Although they are useful, Visa’s dashboard reveals that less than 10% of stablecoin transaction volumes come from “organic payment activity.”

One of the main reasons for this discrepancy is the prevalence of bots in the crypto space. These bots process transactions at high speeds and volumes, which can skew the perception of true user adoption and usage patterns.

Meanwhile, the flexible nature of blockchain networks also contributes to this challenge. Blockchain enables a wide range of use cases, including automated transactions. This flexibility can make it difficult to distinguish between actions taken by real users and actions carried out by automated processes.

Another factor contributing to the difference in stablecoin transaction volumes is the double counting of transactions.

For example, converting $100 of stablecoin A into stablecoin B on any exchange will result in $200 of stablecoin volume being recorded. This practice can inflate transaction volumes and create a misleading impression of the true use of stablecoins.

Visa and Allium Laboratories used two filters to identify such activities.

Implemented filters include a one-way volume filter that only counts the largest amount of stablecoin transferred in a single transaction, eliminating unnecessary internal transactions resulting from complex smart contract interactions.

Additionally, an inorganic user filter is implemented, considering only transactions submitted by accounts that have initiated fewer than 1000 stablecoin transactions in the last 30 days and have a transfer volume of less than $10 million.

Source: Visa Onchain Analytics Dashboard

Despite the difference in total transfer volume and bot-adjusted transfer volume, the analysis revealed a consistent increase in the number of monthly active stablecoin users. As of April 24, there were 27.5 million monthly active users across all chains; This indicates a stable growth trend.

Analysis of USDC and USDT usage trends

Visa’s analysis reveals dramatic growth in USD Coin (USDC) usage over the past eight months.

In September 2023, USDC accounted for 23% of all stablecoin transactions analyzed by Visa.

Source: Visa Onchain Analytics Dashboard

However, by the end of the year, this figure had more than doubled, exceeding 50% of all stablecoin transactions. USDC has consistently accounted for the majority of stablecoin transactions since December 2023, rising to 60% in February 2024.

This trend contrasts with the market cap of Tether (USDT) and USDC.

As of May 7, USDT has a market cap of approximately $111 billion; This is much higher than USDC’s market cap of just over $33 billion.

This discrepancy indicates that USDT remains the dominant stablecoin in terms of market cap, but USDC’s usage in real transactions is overtaking USDT.

Pranav Sood, managing director of EMEA at payment platform Airwallex, commented that Visa’s findings show that stablecoins are still in their infancy as a means of payment. He suggested that existing payment systems need to be improved to ensure their effectiveness.

But not all experts agree with Visa’s analysis.

Nick van Eck, co-founder of Agora, a startup specializing in stablecoins, criticized Visa’s methodology. He argued that the data may include trading firms that are legitimate businesses using stablecoins, thus distorting the perception of actual user adoption.

Visa’s report and the rise of stablecoins

Visa’s latest report parallels the growing importance of stablecoins in facilitating cross-border payments.

According to Sacra, a market research firm, the volume of stablecoin transactions rose from $26 billion in January 2020 to a staggering $1.4 trillion in April 2024 and could potentially exceed Visa’s total payment volume in the second quarter of 2024.

Sacra also reported that stablecoin transactions are processed in minutes, compared to the 6 to 9 hours required by traditional systems.

In terms of cost, stablecoin transactions are also cheaper; Fees are as low as $0.0037, compared to an average of $12 for traditional methods.

Meanwhile, major banks such as Wells Fargo, JPMorgan Chase, Visa and Mastercard are also exploring the use of stablecoins to improve their payment infrastructures.

What needs to be understood here is whether Visa’s reports state the facts or try to undermine competition.