Bernstein: Stablecoin Market Cap Reaches New High, Becoming Systemically Important

The research and brokerage firm Bernstein has stated that stablecoins are becoming "systemically important," with issuers now holding more U.S. Treasuries than sovereign nations. The circulating supply of stablecoins, after reaching a peak in April 2022, has now returned to around a historical high of $180 billion.

Tether and Circle Hold U.S. Debt Ranked 18th in Sovereign Countries

According to a report by The Block, analysts at Bernstein stated that stablecoins pegged to fiat currencies such as the U.S. dollar are reaching systemic importance levels.

The U.S. debt held by stablecoin issuers Tether and Circle is ranked 18th among sovereign countries, just behind Saudi Arabia and ahead of South Korea.

Due to the high yield from U.S. Treasury bonds held by the issuers, the stablecoin business continues to maintain high profits, with Tether achieving a net profit of $5.2 billion in the first half of 2024.

With the Fed expected to cut interest rates, Tether's quarterly earnings could drop by $200 million. How will the leading stablecoin respond?

Stablecoins Have Become "Killer Currency"

Analysts at Bernstein pointed out that in the past 12 months, on-chain stablecoin transaction volumes have doubled monthly, reaching $1.4 trillion, with stablecoins accounting for about 50% of all on-chain transaction volumes.

The number of monthly active users has reached a new high of about 22 million, with a total of 120 million non-zero balance stablecoin wallets. The use of stablecoins has decoupled from cryptocurrencies and is increasingly being used for non-cryptocurrency purposes.

A previous stablecoin study by Visa also showed that stablecoins have become "killer currency" in the cryptocurrency space, especially in emerging markets.

Visa Releases Stablecoin Study: Over 50% of On-Chain Transactions Settled with Stablecoins

Stablecoin Supply Reaches Historic High

According to data from The Block's dashboard, stablecoin circulating supply peaked in 2022, then declined during the bear market but has now returned to nearly $180 billion, a historical high.

Tether's USDT remains the dominant stablecoin, with a market capitalization of around $120 billion, followed by Circle's USDC with a market cap of around $35 billion.

New entrants continue to enter the stablecoin market, with the circulation supply of PYUSD issued by PayPal and Paxos through collaboration nearing $1 billion. Ripple recently announced plans to issue a new cross-border payment stablecoin. Fintech company Revolut, after obtaining a banking license in the UK in July, also stated its intention to enter the stablecoin market soon.

Other drivers of stablecoin growth include providing a USD savings channel for international users, using digital dollars outside the U.S., serving as the primary base currency for cryptocurrency trading, allowing users to earn yields on DeFi platforms, and offering the cheapest cross-border payments.

Non-Cryptocurrency Uses of Stablecoins Are Growing

Bernstein analysts stated that non-cryptocurrency uses of stablecoins are growing, with currency exchange, payment for goods or services, and cross-border transactions being the most popular use cases.

According to their survey, the proportion of young people under 35 holding stablecoins in their assets is increasing. In emerging markets, 35% of respondents aged 18 to 24 own 25% of their assets in stablecoins, while the proportion for the 45-54 age group is 17%.

Analysts believe that the opportunity for higher returns is the most common reason why the younger generation chooses stablecoins over USD bank accounts, and another reason is that stablecoins provide them with more trust, stable value, and fewer opportunities for government intervention.