Stablecoins Gain Traction as Bitcoin's Rise Above $100,000 Captures the Financial World's Attention

Mainstream financial players such as Visa, PayPal, and Stripe are increasingly investing in stablecoin projects—cryptocurrency tokens designed to maintain a stable value

As Bitcoin (BTC) price action stole the show in 2024 with its remarkable rise above $100,000, another segment of the crypto landscape is quietly gaining steam.

Mainstream financial players like Visa, PayPal and Stripe are ramping up their involvement in stablecoins — a type of cryptocurrency token designed to maintain a stable value, usually pegged to the US dollar or other traditional currencies.

Global Demand for Stablecoins Surges

This burgeoning sub-sector of digital assets has proven to be quite lucrative. Issuers of stablecoins can now deploy the reserves backing these tokens in short-term US Treasuries, which are offering attractive yields.

While Bitcoin and other crypto in the industry are known for their volatility, stablecoins are being adopted worldwide for transactions, providing a thread of stability amid the chaos of the crypto markets.

Rob Hadick, a general partner at Dragonfly, a digital-asset venture firm, highlighted the increasing demand for stablecoins from major companies in underserved payment sectors.

“We’ve seen demand increase substantially from some of the largest companies in the world that service global contractor and employee payouts, trade finance and remittance,” he explained.

According to Bloomberg, the stablecoin market is set for more competition as its total market capitalization surged to about $205 billion.

Tether Holdings Ltd.’s USDT remains the top dog with a market cap of around $140 billion, but challenges might be brewing as regulatory frameworks evolve.

The European Union’s Markets in Crypto Assets (MiCA) regulations stipulate that any stablecoins listed on centralized exchanges (CEXs) must be issued by an entity that holds an e-money license.

Circle Internet Financial Ltd., Tether’s main competitor, secured this permit in July, while Tether has not yet applied, potentially putting its future on the exchanges at risk.

Companies Aim for New Revenue Streams Amid Market Volatility

In the US, several companies are making their move in the stablecoin space. Visa has launched its Tokenized Asset Platform, which allows banks to issue stablecoins.

Financial technology company Revolut is exploring the possibility of launching its own stablecoin, and Stripe has acquired the fintech platform Bridge, which specializes in stablecoin transactions.

“Issuing stablecoins is a great business model right now.” remarked Augustus Ilag, investment partner at CMT Digital. Many companies are seeing the success of Circle and Tether and considering launching their own stablecoins to diversify their offerings and generate a new revenue stream.

According to Johann Kerbrat, crypto general manager at Robinhood, the company is working with Paxos to create an open network for stablecoin use, highlighting the great value that stablecoins can bring to their platform.

However, the rise of stablecoins also comes with risks. The catastrophic failure of TerraUSD in 2022, an algorithmic stablecoin that was designed to maintain its fixed value through its parallel currency Luna, serves as a cautionary tale.

The collapse of TerraUSD triggered a broader sell-off in the crypto market, wiping out $200 billion in total market value and leading to the bankruptcy of several digital assets companies.

Despite the pressing need, efforts to establish a comprehensive regulatory framework for stablecoins in the US have stalled, while the EU’s MiCA regulations are setting the stage for clearer guidelines and increased adoption among Europe-based companies.

“Fintechs in Europe are struggling with the stringent banking-like regulations. Stablecoins avoid many of those issues, which also make the process automated,” noted Tarun Chitra, general partner at Robot Ventures.