For a long time, the mass adoption of cryptocurrencies has been considered the “Holy Grail” of the crypto industry, with payment systems serving as the bridge between this technology and the “real” world. The traditional financial system has long been plagued by issues such as high fees, slow transaction speeds, and geographic restrictions.

Cryptocurrency payments can address these issues, offering lower costs, faster processing times, borderless transactions, and more efficient and inclusive financial interactions. As the first report in a series on cryptocurrency payments, this study aims to analyze the stablecoin market landscape and the drivers of future growth.

Stablecoins play a pivotal role in the cryptocurrency payment ecosystem, serving as a bridge between innovation and usability. They minimize price volatility associated with fiat currencies and other underlying assets, providing a reliable medium of exchange for users and businesses across both Web2 and Web3. Furthermore, stablecoins are an indispensable part of all crypto-native applications, such as centralized exchanges, decentralized finance (DeFi) platforms, wallets, and more. On decentralized finance platforms, stablecoins offer opportunities for lending, borrowing, and earning with stable value. In the B2B sector, we are also seeing traditional fintech companies exploring stablecoin solutions to enhance real-world business efficiency. While regulatory uncertainty persists in many regions, more institutional capital is actively entering this space. In summary, stablecoins are crucial in driving cryptocurrency toward becoming a mainstream payment solution that meets the needs of the current financial system and consumers.

Current Landscape of Stablecoins

Stablecoins can be broadly categorized into three main types: fiat-collateralized, crypto-collateralized, and algorithmic. Recently, many new projects have begun adopting hybrid models that mix various assets or select real-world assets (RWAs) as collateral.

Overview of the Stablecoin Ecosystem Source: Berkeley DeFi MOOC

The stablecoin market is more active than ever, continuing to dominate the market. According to data provided by Glassnode, as of mid-June 2024, the total market capitalization of stablecoins across multiple chains, including Ethereum, has grown to over $150 billion. USDT accounts for approximately 74% of this market, USDC around 21%, with the remaining market share divided among various other stablecoins.

Total Supply of Stablecoins
Source: Glassnode

Varied Transaction Volumes: USDC and DAI See Strong Growth

It is noteworthy that when discussing transaction volumes, different data sources may use varying calculation methods. These methods might consider—or disregard—factors such as zombie transactions, outlier trades, and Maximum Extractable Value (MEV) impacts. For example, a report published by Visa in April of this year indicated that, according to their calculations, despite the substantial difference in market cap (21% for USDC vs. 74% for USDT), the transaction volume of USDC has already surpassed that of USDT. When focusing solely on Ethereum, the report highlights that even though DAI’s market cap is lower than both USDC and USDT, its transaction volume is the highest among the three, largely due to its use in flash loans.

Stablecoin Transaction Volumes
Source: Glassnode

Stablecoin Volumes Now Surpass MasterCard and Could Soon Exceed Visa

Looking at the broader picture, stablecoins have been widely adopted, with their combined transaction volumes surpassing Bitcoin and nearing that of MasterCard, the second-largest card network. Although Visa recently reported that over 90% of these transactions are driven by bots, it is evident that the rising usage and liquidity of stablecoins continue to have a significant impact.

Annual Transaction Volumes of Bitcoin/Stablecoins and Other Financial Systems

Source: Visa

Current and Future Growth Drivers of the Stablecoin Market

As USDT and USDC continue to dominate the stablecoin market, we’ve broken down recent announcements from these two companies to analyze the primary growth drivers of the stablecoin market today. Moving forward, we expect these current growth drivers to persist, with the initial entry into the DeFi market and continued innovation in DeFi further fueling the growth of the stablecoin market.

Rise of Stablecoins Beyond the Ethereum Ecosystem

Since the first half of 2024, the value of USDC transfers on Solana has surpassed those on Ethereum. However, it’s important to note that since most stablecoin transactions are driven by MEV (Maximum Extractable Value) arbitrage, this transaction volume may be primarily attributed to high-frequency trading rather than new user growth. This increased liquidity is beneficial for DeFi trading activities, which is a crucial factor to consider.

Circle’s Cross-Chain Transfer Protocol (CCTP) facilitates secure transfers of USDC across different blockchain ecosystems using native minting and burning methods. We anticipate this trend will continue with the protocol’s rollout. Since March of this year, Solana developers can now swap USDC from Ethereum to other EVM-compatible ecosystems, including Arbitrum, Avalanche, Base, Optimism, and Polygon. Some Solana-based DeFi projects have already integrated CCTP in its early stages. Future plans include support for non-EVM blockchains. Additionally, USDC has expanded issuance on ZKsync, Celo, and TON.

Source: Artemis

Strong Demand for Stablecoins in Emerging Markets

Emerging markets have played a crucial role in the growth of USDT and USDC, the world’s top two stablecoin issuers, underscoring stablecoins’ economic stability, financial inclusion, and cross-border transaction capabilities in an era of rising inflation.

As local currencies depreciate, USDT has been widely adopted in emerging markets as an alternative to the U.S. dollar, becoming the most trusted digital dollar in many of these regions. For example, in Brazil, USDT accounts for 80% of all cryptocurrency transactions, a trend mirrored in several other countries. This shift highlights USDT’s strategic importance in ensuring financial stability and accessibility in economies facing currency instability. In June 2024, Tether announced a $18.75 million investment in Taiwan-based startup XREX, which specializes in cross-border payments for SMEs and B2B stablecoin payments in emerging markets.

Innovation and Growth in the DeFi Market

New applications and innovations are providing more use cases for financial activities involving stablecoins. Developments in platforms like Lido Finance, a liquid staking platform, and Synthetix Perps, a newly launched perpetual exchange by Synthetix, offer opportunities for stablecoin holders to earn yields. In March of this year, the lending platform Sparklend, a sub-DAO of MakerDAO, issued such a significant amount of DAI that it required authorization to issue more loans.

Ethena, the fastest-growing stablecoin in 2024, has partnered with centralized exchanges and DeFi platforms such as Lido Finance, Curve, MakerDAO, and Injective Protocol to create an ecosystem with significant yield opportunities and enhanced user experience.

Institutions Are Ready to Participate in the DeFi Market

With expectations that the Federal Reserve may lower interest rates in the next two years, financial institutions are increasingly motivated to seek higher yields in the DeFi market. Although DeFi startups are still in the seed stage, we have observed a notable increase in investment activity from major players like BlackRock, Fidelity, and Franklin Templeton in these startups within the primary market. This level of institutional interest was less common during the previous cycle. The DeFi startups receiving investments are primarily focused on liquid staking and risk-weighted assets.

These institutional giants are also beginning to explore on-chain activities. Franklin Templeton, a fund company with a market capitalization of $14 billion, has launched a tokenized mutual fund on Polygon, competing with BlackRock, which previously launched a similar fund on Ethereum.

Fintech Companies Are Issuing Their Own Stablecoins

Fintech companies, especially those with extensive payment networks, are motivated to issue their own stablecoins as a way to add value. In August of last year, PayPal launched its PayPal USD stablecoin and began offering it to users of its Venmo payment service a few weeks later. In April of this year, Ripple announced plans to launch a stablecoin pegged to the U.S. dollar, fully backed by U.S. dollar deposits, short-term U.S. government bonds, and other cash equivalents. Beyond U.S. dollar-pegged stablecoins, Nomura Holdings has introduced a yen-pegged stablecoin, and Colombia’s largest bank, Banco de Bogotá, has launched its own stablecoin, COPW, backed 1:1 by the Colombian peso. In Europe, Société Générale, France’s third-largest bank, launched its euro stablecoin for the first time in December of last year.

Growth of Synthetic Collateral (Including RWA-Backed Stablecoins)

Stablecoin projects are increasingly distinguishing themselves from the traditional Collateralized Debt Position (CDP) model that emerged in previous market cycles. For example, Tether’s aUSDT is a synthetic U.S. dollar backed by XAUT (Tether Gold) and over-collateralized on the company’s newly launched Alloy platform on Ethereum, allowing users to mint collateralized synthetic assets. Other newer projects using Real-World Assets (RWA) as collateral can be found in the appendix below.

Another example is Ethena Labs’ USDe, which has emerged as a standout performer in 2024, attracting over $3 billion in Total Value Locked (TVL) to date. USDe generates dollar value and yield through two primary strategies: leveraging stETH and its inherent yield, and shorting ETH positions to balance the delta and capitalize on perpetual/futures funding rates. This strategy creates an incrementally neutral CDP by combining locked stETH deposits with corresponding short positions through partnerships with centralized exchanges (CEXs) like Binance. Holding Ethena’s sUSDe (locked USDe) essentially becomes a foundational trade that balances stETH spot positions with ETH short positions, offering users yield from the spread between these positions, currently around 27%.

Stable Assets with Embedded Yields: Internet Bonds
Source: EthenaLabs Gitbook

Latest Technological Developments Enhancing Stablecoins

Bitcoin Ecosystem

Bitcoin scaling has led to the creation of several Bitcoin Layer 2 chains and Layer 1 innovations (such as Runes). The development of Bitcoin DeFi has also created more use cases for these native Bitcoin-backed stablecoins.

For instance, Bitcoin Layer 2 projects like RSK (Rootstock) have enabled Bitcoin smart contracts. By enabling smart contracts, RSK has opened the door to building Bitcoin-backed stablecoins. These stablecoins are pegged to fiat value but are backed by Bitcoin, leveraging the security and trust of the Bitcoin network while providing price stability to users. A notable project built on RSK is Sovryn, which uses these advanced Bitcoin capabilities to offer stablecoins pegged to fiat currencies while being protected by the underlying Bitcoin network.

Stacks is another Layer 2 project that integrates smart contracts, decentralized applications (dApps), and Bitcoin. It features stablecoins within its ecosystem, with the USDA stablecoin developed by Arkadiko Finance standing out. USDA is a decentralized, crypto-collateralized stablecoin that maintains its stability by collateralizing STX tokens (the native tokens of Stacks). Users can lock STX in the Arkadiko Finance protocol to mint USDA. This protocol uses a “Proof of Transfer” consensus mechanism, which supports the stablecoin with Bitcoin, ensuring its value. USDA’s stability is further supported by over-collateralization, linking its value to real-world assets.

Cross-Chain

Interoperability is crucial for the accessibility and adaptability of stablecoins. Recent advancements in cross-chain solutions have significantly improved stablecoins’ ability to operate seamlessly across different blockchain networks. These improvements allow users to transfer stablecoins effortlessly between platforms, ensuring broader acceptance and use of stablecoins within the decentralized finance ecosystem.

Ondo Finance, in collaboration with Axelar, has launched a cross-chain solution called the “Ondo bridge,” which supports the issuance of native tokens, including USDY, across Axelar-supported blockchain networks.

USDC’s cross-chain protocol was developed in partnership with Chainlink’s Cross-Chain Interoperability Protocol (CCIP), significantly enhancing its utility and coverage across various blockchain networks.

LayerZero’s OFT (Omnichain Fungible Token) standard—and the recently launched USDV stablecoin—exemplifies the next generation of stablecoins, promoting interoperability across multiple blockchain ecosystems and overcoming the potential risks of a single-chain dominance scenario.

Outlook: Impact on native cryptocurrency CeFi

We note that stablecoins are a key strategy for Web2 and Web3 fintech companies, especially for crypto-native centralized finance (CeFi) platforms. We define a crypto-native centralized finance (CeFi) platform as a centralized entity that provides payments, transactions, lending and other services in the cryptocurrency field. By integrating stablecoins or partnering with relevant providers, these platforms can provide existing customers with more stablecoin choices and attract new customers.

Alchemy Pay is a leading payment solutions provider that has become an important bridge between traditional fiat systems and evolving cryptocurrencies. Its platform enables merchants and consumers to easily transact using cryptocurrencies and fiat currencies.

Alchemy Pay’s expanded support for Celo-native USDC and USDT facilitates easy conversion, demonstrating the company’s commitment to providing a variety of stable and reliable payment options. In June this year, Alchemy Pay also announced support for USDT on TON, expanding the scope of access for TON users.

Payment Channels, Source: Alchemy Pay

Crypto.com: A Pioneer in Cryptocurrency Integration

Founded in 2016, Crypto.com has grown into one of the world’s largest cryptocurrency platforms. The platform also issues the Crypto.com Visa Card, allowing customers to make everyday purchases directly from their crypto accounts. Visa began testing the use of USDC in its financial operations in 2021. The company partnered with Crypto.com on a pilot project where Crypto.com used USDC to fulfill its settlement obligations on its Visa Card in Australia. This USDC settlement process eliminated the need for Crypto.com to convert digital currencies into fiat, improving capital management and providing several additional business benefits.

By leveraging Visa’s USDC settlement functionality, Crypto.com has been able to:

• Reduce the pre-funding period from 8 days to 4 days.
• Lower foreign exchange fees by 20-30 basis points.
• Focus more on strategic initiatives rather than daily operations.

Issuers (Crypto-Native Companies/Exchanges and Fintech Firms)

The integration of USDC and similar stablecoins helps these platforms:

• Drive more payment options and transaction volumes.
• Support USDC currency conversions, leading to better capital management in settlements.

Acquirers

For acquirers, the use of stablecoins like USDC can:

• Expand product offerings and acceptance rates, attracting crypto-savvy merchants and customers.
• Enable merchants to receive payments in USDC and transact on the blockchain.

[Appendix 1] Notable Market Projects and Case Studies

Collateralized Debt Positions (CDP): MakerDAO, Liquity, and Curve

Recently, several major stablecoin projects, including MakerDAO, Liquity, Curve, AMPL, and Frax, have made significant progress in enhancing their protocols and expanding their ecosystems. These projects have introduced new features, established strategic partnerships, and integrated with other blockchain networks, improving stability and usability while attracting a broader user base. Below are the key developments and milestones achieved by these projects over the past year:

MakerDAO

GUSD PSM Adjustment (June 2023):

In June 2023, MakerDAO voted to adjust the parameters of the GUSD Peg Stability Module, including lowering the maximum debt ceiling and reducing the fee rate to 0%.

Launch of Spark Protocol (September 2023):

MakerDAO launched the Spark Protocol in September 2023. This protocol aims to enhance the DeFi capabilities of the ecosystem by integrating multiple stablecoins and offering yield optimization.

New Collateral Types (Early 2024):

At the beginning of 2024, MakerDAO introduced several new collateral types to its platform, including tokenized real estate and other physical assets, to diversify and stabilize the backing of DAI.

Liquity

Integration with Aave (August 2023):

In August 2023, Liquity announced its integration with Aave, allowing users to use LUSD as collateral within the Aave ecosystem, thereby increasing its utility and adoption.

LUSD on Optimism (December 2023):

Liquity deployed LUSD on the Optimism Layer 2 network in December 2023, enhancing transaction speeds and reducing costs for users.

Protocol Upgrade (May 2024):

In May 2024, Liquity implemented a major protocol upgrade to improve stability and security, including enhancements to the liquidation mechanism and stability pool.

Curve

Launch of crvUSD (October 2023):

In October 2023, Curve Finance launched its own stablecoin, crvUSD, designed to be deeply integrated with Curve’s liquidity pools and governance mechanisms.

Partnership with Yearn Finance (January 2024):

In January 2024, Curve partnered with Yearn Finance to optimize yield farming strategies, combining Curve’s liquidity pools with Yearn’s vaults.

Cross-Chain Expansion (June 2024):

By June 2024, Curve had expanded its operations across multiple blockchains, including Avalanche and Solana, to increase liquidity and user base.

AMPL (Ampleforth)

Launch of Geyser V2 (July 2023):

In July 2023, Ampleforth launched Geyser V2, an upgraded liquidity mining program that offers more flexible and rewarding incentives for providing liquidity to decentralized exchanges.

AMPL on Ethereum Layer 2 (November 2023):

In November 2023, Ampleforth expanded its operations to Ethereum Layer 2 solutions, improving scalability and reducing transaction costs for AMPL users.

Partnership with Chainlink (February 2024):

In February 2024, Ampleforth announced a partnership with Chainlink, utilizing its oracle services to provide more accurate and decentralized data, thereby enhancing AMPL’s adaptive supply mechanism.

Frax

Launch of Fraxlend (September 2023):

Frax Finance launched Fraxlend in September 2023, a decentralized lending protocol that allows users to borrow and lend stablecoins at dynamic interest rates.

New Collateral Types (December 2023):

In December 2023, Frax added several new collateral types, including tokenized gold and synthetic assets, to support the issuance of FRAX.

Governance Token Upgrade (April 2024):

In April 2024, Frax upgraded its governance token, FXS, adding new features such as staking rewards and an improved voting mechanism.

[Appendix 2] Evaluation Metrics for Stablecoins

Startup Evaluation and Due Diligence Checklist

Investors are advised to evaluate emerging stablecoin issuers based on two key dimensions: mechanism design and partnership resources.

Mechanism Design:

Collateral Design: Assess the composition, types, health, transparency, and stability of the collateral backing the stablecoin.

Debt-to-Collateral Ratio: Focus on the ratio to ensure the stability and security of the stablecoin.

Liquidation Mechanism: Understand the process for liquidating collateral to maintain the stablecoin’s value.

Cross-Chain Support: Evaluate the stablecoin’s ability to operate across multiple blockchain networks.

Partnership Resources:

DeFi Partnerships: Consider the stablecoin’s integration with major DeFi platforms and the expected liquidity.

Initial User Base: Examine the initial adoption and the potential to attract a broader user base.

Additional Evaluation Metrics:

Market Capitalization: A high market cap reflects the scale and market adoption of the stablecoin, indicating higher trust and usage.

Liquidity: High liquidity minimizes slippage during transactions, crucial for maintaining the stablecoin’s peg.

Collateralization: A higher collateralization ratio ensures the stablecoin’s security and stability.

Redemption Mechanism: A robust redemption mechanism, including low fees and a high success rate, maintains trust in the stablecoin’s value.

Adoption Rate: Widespread adoption signifies trust and utility within the ecosystem.

Transparency: Transparency builds trust among users and regulators, essential for long-term success.

Security: Strong security measures protect user funds and the integrity of the stablecoin.

Community Support: A strong community drives adoption and innovation, contributing to the stablecoin’s sustainability.

[Appendix 3] Recently Funded Stablecoin Startups

Agora

Website

Agora Finance offers yield-generating stablecoins backed by VanEck, with a strong emphasis on regulatory compliance and obtaining necessary licenses. Currently, its services are limited to select markets outside the United States. Agora holds its reserve funds in trust and has one of the world’s largest custodians manage them, with regular audits to ensure high security. The assets are protected from bankruptcy, enhancing investor confidence. Dragonfly Capital led the investment in Agora, demonstrating strong support and trust in its potential. Agora is expanding partnerships with financial institutions to enhance liquidity and accessibility, further solidifying its market position.

Midas

Website

Midas has launched a stablecoin backed by U.S. Treasury bonds and plans to soon introduce its stUSD token on DeFi platforms like MakerDAO, Uniswap, and Aave. Midas leverages BlackRock to purchase Treasury bonds and Circle’s USDC to offer a secure and stable digital asset. Key partners include custodial technology provider Fireblocks and blockchain analytics provider Coinfirm. Midas is currently focusing on integrating advanced security measures and expanding its business across more DeFi platforms to maximize stUSD’s utility and adoption.

Angle

Website

Angle’s USDA stablecoin is backed by U.S. Treasury bills and tokenized Treasury assets. Holders of USDA tokens under the Angle protocol receive a target yield of at least 5% from the reserve assets and lending platform income. Angle is also working on creating a forex hub backed by A16z to enable seamless conversion between USD and EUR-pegged stablecoins. Recent developments include increased staking rewards, expanded the forex hub to include more currency pairs, and strategic partnerships to enhance protocol security and user engagement.

Yala

Website

Yala is revolutionizing Bitcoin liquidity with its innovative meta-yield stablecoin YU, a BTC-backed stablecoin that leverages Bitcoin’s power in DeFi to generate yields across multiple blockchains. Yala issues YU directly on Bitcoin using the Ordinals protocol and integrates it with decentralized index networks and oracles via a meta-protocol. This setup ensures borderless liquidity and accessibility, allowing users to generate yields from various blockchain ecosystems without leaving the Bitcoin environment. Recent advancements include the implementation of mapping and minting mechanisms, enhancing users’ ability to seamlessly leverage cross-chain yields. This approach not only enhances Bitcoin’s utility in DeFi but also positions Yala as a pioneer in the decentralized finance space.

BitSmiley

Website

BitSmiley is building a comprehensive financial ecosystem on Bitcoin through its Fintegra framework, which includes a decentralized over-collateralized stablecoin protocol, a trustless native lending protocol, and an on-chain derivatives protocol. The first step is the launch of a stablecoin generated via Bitcoin over-collateralization, known as bitUSD. bitUSD will serve as the cornerstone of the BitSmiley ecosystem, first launching on BitSmiley’s partner BTC Layer 2 platform and eventually expanding to other Layer 2 solutions. The over-collateralization mechanism of bitUSD is similar to MakerDAO’s model, reducing the learning curve for DeFi users. Recently, BitSmiley secured investments from OKX Ventures and ABCDE, underscoring the project’s credibility and potential in the decentralized finance space.

BitStable

Website

BitStable is a decentralized asset protocol based on the BTC network, allowing anyone to generate $DALL stablecoins from collateral within the BTC ecosystem. BitStable employs a dual-token system ($DAII and $BSSB) and a cross-chain compatible structure. $DAII is a stablecoin whose value and stability derive from the robustness of BTC ecosystem assets (BRC-20), including BRC-20, RSK, and Lightning Network. In BitStable’s vision, $DAII’s cross-chain capability connects the Ethereum community with the BTC ecosystem. The total supply of $DAII is capped at 1 billion tokens. $BSSB, the platform’s governance token, enables the community to maintain the system and manage $DAII. Additionally, BitStable incentivizes $BSSB holders through dividends and other measures.

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