Stablecoins are everywhere these days. If you’ve been paying attention, you’ve probably noticed headlines about more and more companies diving into the stablecoin game. Just recently, payment processor Stripe, announced plans to acquire stablecoin platform Bridge for $1.1 billion, with a B, to expand their stablecoin infrastructure.
Have you stopped to wonder why the focus on stablecoins, the “boring” assets compared to the high-octane price action seen elsewhere in crypto? What’s driving this surge in stablecoin issuers and related infrastructure news we’re seeing?
Before we get to the “why”, let’s lead with the prediction:
In the not-too-distant future, there will be hundreds of stablecoin issuers globally. These issuers will span private firms, commercial banks, and even governments—multiple issuers for each currency.
Back to the why. Why is this happening and who is it good for? Let’s break it down.
A brief history of banking
First, let’s take a step back to understand the foundation. Banking is one of the oldest industries in the world. While banks have expanded to deliver an entire menu of services, the core areas of expertise have always been:
- Storing your money, while giving only you access to it.
- And in the technology age: enabling you to send your money to someone else, whether it’s a person or a business.
Much of the world has become comfortable, arguably complacent, with banks and their money. Banks have done quite well for themselves by taking your deposits (which may earn you marginal yields to the tune of .01-.05%) and investing that money in higher-yielding assets. The spread between what they earn and what they might pay in interest to account holders becomes their profit. This is why banks are always eager for you to open accounts and keep your funds with them—it’s how they stay in business.
If we look at just the top 10 banks in the world, the latest figures show that they hold just shy of $34 trillion in assets, but they only pay a fraction of that in interest to depositors, while generating massive profits through investments and lending. With the rise of DeFi and stablecoins, individuals and businesses are beginning to question if traditional banking is the best way to manage money.
Enter stablecoins: is this Banking 2.0?
Stablecoins represent a paradigm shift in banking. They are essentially designed to replace the core foundations of banking. But now, via the blockchain.
Popular stablecoins like USDT and USDC (which collectively hold over 90% of the market share) allow you to store and transfer funds over a blockchain 24/7/365. No need to wait for the bank to open or stress about processing times. You can move money at any time, anywhere, and usually for a fraction of the cost that banks charge.
The current obvious users of stablecoins come from countries whose fiat currency suffers from instability. Stablecoins provided much needed, you guessed it, stability. For example, in Argentina, where inflation has significantly devalued the peso, many citizens use stablecoins like USDT to preserve their savings by moving them into a stablecoin that is pegged to the more stable US dollar, from the comfort of their home.
This ability to shield your hard-earned money from weakening purchasing power, corruption or mismanagement is a game-changer for many people around the world. It’s also the tip of the iceberg. We will explore the benefits of stablecoin usage in more developed countries in the next piece.
Do we need 100s of stablecoins?
Stablecoins aren’t just popular because they’re convenient. They can also be incredibly profitable, just like banks.
Let’s talk about the financial side of things.
Much like traditional banks, stablecoin issuers collect funds from users and then invest those funds in short-term assets, typically ultra-safe investments like US Treasuries. As of October, 2024, 10-year US Treasury bonds delivered just over 4%. This means that for every $100 billion in stablecoin issuance, an issuer can earn around $4 billion in revenue annually. Not bad, right?
It’s easy to see why so many companies are getting into the stablecoin business. It’s a simple, effective way to generate steady revenue for them. What about the yield? Yield-bearing stablecoins are the next breakthrough in the crypto industry, offering new advancements that make stablecoin usage highly compelling. By using the sizable reserves held by issuers, these stablecoins provide users with the opportunity to earn returns, helping to further mitigate the impact of inflation and protect the value of their holdings.
And while the majority of stablecoins are currently issued in US dollars, we’re already seeing new entrants offering stablecoins in other currencies like the euro or the UAE dirham. This is where the “100s” comes in. Over time, we expect to see even more diversity in the stablecoin landscape, with local currencies becoming more common and governments or commercial banks stepping in as issuers.
Can traditional banks coexist alongside stablecoins?
Traditional banks have long acted as gatekeepers, safeguarding money and monitoring transactions for fraud and money laundering. While stablecoins disrupt the banking model with their decentralized nature and cheap, instant cross-border transfers, there’s room for collaboration.
Instead of competing head-on, there’s potential for collaboration. Many banks are already exploring ways to integrate blockchain technology with payment providers like Visa, into their operations, and some are even considering issuing their own stablecoins. Frankly, adoption continues to grow, but that’s not the challenge.
The bigger issue becomes continued oversight and ethical use, the main negative character trait stablecoins are working to shed.
In the early years, stablecoins, and crypto generally, were viewed as ways for bad actors to bypass laws around money laundering or terrorist funding. As stablecoins grow in popularity, so does the need for robust blockchain analytics and forensics tools. Issuers and users alike need to know who they’re dealing with on the blockchain to ensure they aren’t inadvertently enabling illicit activities. Let me be clear, this is not a problem created by stablecoins. Bad actors transact in fiat dollars to this day. The beauty is that with blockchain we have a higher chance of preventing this, not enabling it further.
Crystal Intelligence, for example, provides tools that allow users to make informed decisions about the entities they interact with and provides law enforcement with the capabilities to track and, in some cases, freeze and recover funds. If a duffle bag of money is exchanged for weapons in the real world, little can be done. The blockchain is a breadcrumb trail designed to be used for good. Crystal intends to enable this further. We’ve even helped in cases where stolen funds were reissued to their rightful owners, a level of security that’s crucial as stablecoins, and crypto more generally, continue to grow in prominence.
A world of stablecoins
Stablecoins have established themselves as a key part of the future of finance. They offer all the benefits of traditional banking while reducing the limitations: immediate, borderless transactions, 24/7 availability, and the ability to store value in a stable currency. With the added potential for profit, it’s no wonder hundreds of companies are lining up to issue their own stablecoins.
As the landscape evolves, we expect to see more diversity in stablecoin offerings and even more players entering the market. At Crystal Intelligence, we’ll be here to ensure that this rapidly growing ecosystem remains safe, transparent, and accessible for everyone.
So, are stablecoins the future of money? I’d say yes. And the future is looking bright.
