Crypto’s next big thing isn’t meme coins, it’s stablecoins

While meme coins are sparking a frenzy among retail traders, stablecoins appear to be emerging as crypto’s most promising innovation so far.

Although regulators are cautious due to extreme price fluctuations, the meme coin craze remains strong. While these tokens offer big returns, the real game changer may be something that seems less exciting and even a little boring: stablecoins.

In fact, stablecoins appear to be gaining support even from major banks that initially feared crypto. Citi Wealth strategists emphasized in a recent research report that stablecoins could “strengthen the dominance of the US dollar,” adding that activity has reached record levels with a value of $5.5 trillion in the first quarter of 2024.

“Therefore, rather than usurping the dollar, this type of cryptocurrency could make the dollar more accessible to the world and strengthen the US currency’s long-standing global dominance.”

Citi Wealth

Unlike Bitcoin (BTC), their values ​​do not fluctuate much, making these assets useful for daily payments, savings, and lending. Most stablecoins are backed by reserves such as cash or U.S. treasury bonds, allowing them to maintain their value.

Strangely enough, stablecoins initially started as a tool for crypto traders. They allow investors to keep funds in digital dollars rather than converting them into real dollars. But as of today, their usage has increased significantly as many people use them for cross-border payments, savings and even loans.

Status of stablecoins

Stablecoins are growing fast. Really fast. Since their launch in 2014, they have reached a market cap of over $200 billion, according to CoinGecko data. Citi claims that $5.5 trillion in transactions in 2024 will involve stablecoins, adding that this is more than Visa, which processes $3.9 trillion. Popular stablecoins include Tether (USDT), USD Coin (USDC) and decentralized DAI (DAI). Together they dominate the market but differ in terms of accessibility.

Total stablecoin market cap | Source: Citi Wealth

With MiCA regulation looming in Europe, DAI and USDT may be dropped as major crypto exchanges like Coinbase plan to stop offering them due to the new regulations. Tether CEO Paolo Ardoino criticized the EU’s rules, saying MiCA’s stablecoin regulations could pose “systemic risks” for European banks.

Developed countries do not lead in the use of stablecoins, but emerging markets play a larger role. According to data from blockchain firm Chainalysis, in places where currencies are weak, people are turning to stablecoins to access dollars. This is especially true in countries like Argentina, where inflation has made the local currency unreliable because stablecoins are faster and cheaper than traditional bank transfers.

Competition with stablecoins and the US dollar

Stablecoins are not just a crypto trend. They appear to strengthen the strength of the US dollar. Citi’s strategists state that approximately 93 percent of stablecoins are pegged to the dollar. This makes the dollar more accessible globally, especially in countries where access to U.S. banks is limited. Citi states that this could further strengthen the dollar’s role as the world’s reserve currency.

However, stablecoins are not risk-free. Issues such as issuer bankruptcy, custody issues, and “unpinning” may arise. Some stablecoins have crashed in the past, while others have temporarily lost their stability. Regulators are watching closely, and new rules in the US and Europe aim to make stablecoins safer for users.

Trillion dollar opportunity

The main backers of stablecoins are not retail users in emerging markets, but venture capitalists who seem quite excited about them.

Stablecoins represent a trillion-dollar opportunity.

Over the next decade, the digital dollar will define the world of finance.

Here’s how we view the stablecoin landscape and where we see opportunities today 👇 https://t.co/HWff7k12Fj

— Mason Nystrom (@masonnystrom) December 5, 2024

Californian venture capital firm Pantera Capital calls stablecoins a “trillion-dollar opportunity,” noting that they now account for more than 50% of blockchain transactions, up from just 3% in 2020.

“In a short period of time, stablecoins have demonstrated their ability to become one of the transformative innovations in crypto. And 2024 has been a breakout moment for stablecoins, with over ~$5 trillion in adjusted volume traded across nearly 200 million accounts, with over $1 billion in transactions.”

Pantera Capital

Pantera Capital sees stablecoins as a solution for the trillion-dollar cross-border payments market. With global remittances also generating billions of dollars each year, Pantera believes stablecoins are on the way to making cross-border payments via crypto a reality.

Pantera Capital is not the only company investing heavily in stablecoins. Startup accelerator Y Combinator has previously highlighted the potential of stablecoins by including them as a separate category for funding requests. Y Combinator group partner Brad Floar says it’s “clear that stablecoins will play a big role in the future of money.”

The future of stablecoins

The stablecoin market is still growing, with companies working on tools to facilitate payments and conversions. Platforms like BitPay and Coinbase Commerce allow businesses to accept stablecoins and quickly convert them to fiat money, making them more user-friendly.

It is clear that regulation is still in its infancy. Clear rules can help build trust and attract more users, but regulations like MiCA have already raised concerns for large stablecoin issuers. One thing is certain: As stablecoins continue to grow, their impact on global finance will likely increase as well.