Yield-Bearing Stablecoins to Capture Most Idle Cash Reserves, JPMorgan Predicts

Yield-bearing stablecoins as well as tokenized Treasuries have gained increased popularity and could see substantial growth in future.

Yield-bearing stablecoins and tokenized Treasuries have gained significant popularity and could see substantial growth in future. JPMorgan analysts predict that the total stablecoin market share of yield-bearing assets may expand from 6% to 50%. This growth is imminent unless new regulatory restrictions slow down their expansion.

Yield-Bearing Stablecoins to Dominate Market Share

Yield-bearing stablecoins make up a small percentage of the entire stablecoin market. However, the market capitalization of these coins has increased rapidly from $4 billion to more than $13 billion in recent months. The leading yield-bearing stablecoins such as USDe, USDS, BUIDL, USD0, and USDY have experienced rapid growth due to increased investor demand.

JPMorgan analysts have outlined various factors that contribute to the growth of yield-bearing stablecoins. These assets enable investors to generate interest without high-risk and trading and lending activities. Major crypto platforms like Deribit and FalconX accept yield-bearing stablecoins such as tokenized Treasuries as collateral.

Additionally, tokenized Treasuries have become a central element in decentralized finance (DeFi). DeFi projects such as Frax Finance use these assets to boost yield generation. Traditional DeFi yields have plummeted since 2022 which further increases the interest in yield-bearing stablecoins.

The U.S. Securities and Exchange Commission approved Figure Markets’ yield-bearing stablecoin YLDS which demonstrates increased support for the segment. The registration of YLDS as a security enhances the credibility of yield-bearing stablecoins. JPMorgan analysts predict such regulatory approval will spur further market growth in this market.

Yield-Bearing Stablecoin Faces Hurdles

However, yield-bearing stablecoins face various obstacles despite the positive market trends. These assets attract strict regulatory scrutiny because of their classification as securities. These regulatory obstacles have limited the participation of retail investors in the yield-bearing stablecoins markets.

Moreover, traditional non-yield-bearing stablecoins such as USDT and USDC continue to dominate the market. USDT and USDC stablecoins have a combined market value of about $220 billion which allows fast, low-cost and efficient transactions. Additionally, USDT and USDC have high liquidity compared to yield-bearing stablecoins.

JPMorgan analysts predict that the current liquidity limitation of yield-bearing stablecoins will eventually fade away. The increased acceptance of yield-bearing stablecoins in crypto derivative markets, DAO treasuries and liquidity pools could boost their adoption. The analysts predict that more institutional investors will embrace these assets which will boost their liquidity.

Yield-bearing stablecoins could capture most idle cash reserves held in traditional stablecoins in the future. Experts estimate that idle cash constitutes less than the total stablecoin market value. Although the yield-bearing stablecoin market faces competition it reveals huge potential for growth.