A recent research paper concluded that the use of stablecoins for speculative activities in the crypto assets industry has dropped by 90 percent since 2019.
Circle Internet Financial LLC recently co-authored a research paper titled ‘Beyond Speculation: Payment Stablecoins for Real Time Gross Settlements’ that was featured among three other articles at the DC Fintech Week 2023. From the stablecoins research, which was led by Circle Chief Economist, Gordon Y Liao, the use of fiat-backed stablecoins has increased in the real world and significantly plunged in the speculative crypto market.
Notably, the stablecoins market was initially used to derive trust in the digital asset market but has since evolved to other use cases. Moreover, the mainstream adoption of cryptocurrencies has increased trading volume for the underlying altcoins and Bitcoin to the extent that liquidity has significantly improved.
Nonetheless, stablecoins are still used by most of the decentralized finance (DeFi) protocols that have integrated with different blockchains.
“Payment stablecoins have emerged as a medium exchange and store of value with less speculative and leveraged activities than fiat M2 money. Payment stablecoin’s trading turnover is 10 percent that of trading stablecoins and 60 percent that of fiat M2 dollar,” Circle noted.
According to the report, the use of stablecoins in real-time gross settlements has the potential to mitigate risks associated with concentrated liquidity in the traditional monetary system. Moreover, stablecoins backed by fiat have the ability to move fast with minimal friction, thus enabling efficient cross-border payments.
Nonetheless, the report highlighted that there is a greater need to integrate the stablecoins market with the existing financial infrastructure in a bid to unlock further growth in real-time payments.
Stablecoins and the Market Picture
According to our latest market data, the total stablecoins market has surged to over $126 billion and an average 24-hour trading volume of about $41 billion. Notably, the United States dollar-backed stablecoins have significantly dominated the industry led by the Euro, Pound, and the Japanese Yen. The PayPal USD (PYUSD) had a market cap of about $158 million and a 24-hour trading volume of around $3.3 million on Wednesday.
The leading stablecoins by trading volume remain Tethee (USDT) with a market cap of about $86 billion and a 24-hour trading volume of around $28 billion. The second largest is Circle’s USDC with a market cap of about $24.5 billion and a 24-hour trading volume of about $8 billion.
However, the stablecoins market has been struggling with frequent depegging, with notable ones including the Terra Luna UST that wiped out over $30 billion and USDC earlier this year.
According to recent research by Moody’s Analytics through its new on-chain analysis tool dubbed Digital Asset Monitor (DAM), the top-five largest stablecoins depegged 707 times from January to Mid-September this year, involving more than 3 percent in a day against their fiat currency peg.