As of 2024, stablecoins have gone through a decade of development. During this decade, stablecoins have not only experienced market risk shocks and regulatory adjustments, but have also gradually occupied an important position in the global financial system and become one of the pillars of the digital currency ecosystem. Since the second half of 2023, with the expansion of application scenarios such as decentralized finance (DeFi) and cross-border payments, the stablecoin market has once again entered a rapid growth track, attracting widespread attention from the industry, academia, and policy makers.
This article will explore the development history and future potential of stablecoins from three aspects: development trends, application scenarios and future prospects.
Development Trend
1. Overall growth and market recovery
The stablecoin market has experienced rapid growth and certain fluctuations in the past decade. Especially between 2017 and 2021, driven by the bull market in digital assets and the prosperity of cryptocurrency exchanges, the market value of the stablecoin market once rose sharply. Mainstream stablecoins represented by Tether (USDT) and USD Coin (USDC) dominate the market, with a market share of more than 90%. However, the collapse of TerraUSD (UST) in 2022 brought a huge impact on the stablecoin market, and the market value once fell back, but since the second half of 2023, as the risks gradually subsided, the market resumed growth. In November 2024, the global stablecoin market value has approached 200 billion US dollars, and USDT and USDC still dominate.
2. Market oligopoly
The stablecoin market shows obvious oligopoly characteristics. The combined market capitalization of the two major stablecoins USDT and USDC exceeds 90%, and the dominance of U.S. dollar stablecoins is particularly significant. The market value of US dollar stablecoins accounts for more than 95%, becoming the main carrier of capital flows in the crypto asset market. These U.S. dollar stablecoins not only play an important role on the blockchain, but also gradually expand their applications in cross-border payments, international trade, and cooperation with financial institutions.
3. Integration with traditional finance
With the development of the stablecoin market, its integration with the traditional financial system is becoming increasingly obvious. For example, the US online payment company PayPal launched the stablecoin PayPal USD pegged to the US dollar in 2024, and plans to support merchants to conduct cryptocurrency transactions through its platform; at the same time, Japan's three major banks have cooperated to launch a cross-border payment system based on stablecoins, which indicates that stablecoins are gradually being incorporated into the traditional financial system to play the role of payment, clearing and settlement.
Application scenarios of stablecoins
1. Cross-border payment and settlement
US dollar stablecoins are increasingly used in global cross-border payments and settlements. Due to the obvious advantages of stablecoins in terms of time and cost, they are significantly competitive in international remittances and payments. Traditional cross-border payments usually take several days, while blockchain-based stablecoin payments can arrive in almost real-time, and transaction fees are much lower than traditional bank transfers. In 2024, the payment and settlement volume of stablecoins has reached 2.5 trillion US dollars, demonstrating its important position in the global payment system.
2. Decentralized Finance (DeFi)
Decentralized finance (DeFi) is a major application scenario for stablecoins. Compliant stablecoins such as USDC have become the main supporters of DeFi protocols and key assets in multiple DeFi applications such as lending, trading, and liquidity provision. In 2024, the total locked value (TVL) of the DeFi market reached US$94.1 billion, most of which was in the form of stablecoins. Stablecoins not only provide liquidity for the DeFi market, but also become the programmable base currency in the DeFi protocol.
3. Currency substitution and savings tools
In addition to its application in digital asset transactions, stablecoins have also shown a wide range of uses in currency substitution and savings tools. In some countries with unstable economies or depreciating local currencies, users use stablecoins to save and make cross-border payments to avoid the risks brought by fluctuations in their own currencies. In 2024, the use of stablecoins in emerging markets such as Brazil, India, Indonesia, Nigeria and Turkey will gradually surpass cryptocurrency transactions and become part of daily financial activities.
The Promise of Stablecoins
1. Risk management: redemption and key loss issues
Although stablecoins have shown great potential in payment and cross-border settlement, their development also faces the challenge of risk management. For example, the risk of stablecoin redemption runs still exists. Especially when the market fluctuates violently, whether the issuer can maintain a 1:1 fiat currency reserve is an important issue. In addition, the private key management problem of stablecoins is also a difficult problem that needs to be solved urgently. Once a user loses his private key, he cannot retrieve the assets in his wallet.
2. Competition between Central Bank Digital Currency (CBDC) and Digital Currency Bridge
The rapid development of central bank digital currencies (CBDCs) may pose a challenge to the application of stablecoins in cross-border payments. Currently, many countries and regions are exploring central bank digital currencies and plan to achieve standardization of cross-border payments through the "Multilateral Digital Currency Bridge". Compared with stablecoins, central bank digital currencies are backed by the government and may have greater advantages in stability and controllability.
3. Compliance and Regulation
As the stablecoin market expands, financial regulation will become a key factor affecting its development. Globally, the regulatory framework for stablecoins is still under construction. The European Union has passed the Markets in Crypto-Assets Act (MiCA) and plans to impose strict regulation on stablecoins. The United States is also promoting relevant laws to require stablecoin issuers to comply with laws and regulations such as anti-money laundering and customer identity verification. The future development of stablecoins will depend on whether they can adapt to increasingly stringent regulatory requirements and ensure their stability and transparency.
Conclusion
The development of stablecoins has entered a new stage. The market is becoming increasingly mature, and its application scenarios have gradually expanded to cross-border payments, DeFi, asset savings and other fields. Despite facing multiple challenges such as regulation and risk management, stablecoins, as a bridge between digital currency and traditional finance, have huge development potential. In the future, with the improvement of the regulatory framework and the continuous innovation of technology, stablecoins are expected to occupy a more important position in the global financial system and become an important force supporting the integration of digital assets and traditional finance.