Stablecoins represent a trillion-dollar opportunity.

This is no exaggeration.

While cryptocurrencies are often perceived as volatile, with tokens and liquidity, the other side of cryptocurrencies, the more quietly-held banner of cryptocurrency adoption, is stablecoins. For newcomers, these crypto dollars are pegged 1:1 to the underlying fiat currency, using algorithms (less popular) or reserves (more popular) to maintain the peg.

Stablecoins have grown from accounting for 3% of blockchain transactions in 2020 to over 50% now. Stablecoins are the killer app claim of cryptocurrencies, and unlike many cryptocurrencies, stablecoins are fundamentally non-speculative in nature.

In a short period of time, stablecoins have demonstrated the ability to become one of the transformative innovations in the cryptocurrency space. 2024 is the breakthrough moment for stablecoins, with adjusted trading volume exceeding $50 trillion, transaction volume exceeding $1 billion, and involving nearly 2 billion accounts.

In the previous cryptocurrency bull market, stablecoins achieved remarkable growth, but this time, the application of stablecoins has gone beyond the DeFi ecosystem. Over the past few years, stablecoins have demonstrated their core value proposition - frictionless cross-border payments, initially achieved through acquiring US dollars. Correspondingly, the fastest growing regions for stablecoins are emerging markets, which have a high demand for the US dollar.

Stablecoins provide a 10x value proposition for traditional payment methods for B2C payments (such as remittances) and cross-border B2B transactions.

Cryptocurrencies have long held the promise of providing a solution for the trillion-dollar cross-border payments market. By 2024, cross-border B2B payments made through traditional payment channels will reach around $40 trillion (excluding wholesale B2B payments) (Juniper Research). In the consumer payments market, global remittances generate revenue in the hundreds of billions of dollars annually. Now, stablecoins provide the means to achieve global cross-border remittance payments through crypto rails.

As adoption of stablecoins accelerates in both the B2C and B2B payments domains, the supply and transaction volume of on-chain stablecoins have reached historic highs.

The Stablecoin Trifecta: Better. Faster. Cheaper.

There's an old saying in business: it's rare for a product to simultaneously offer better, faster, and cheaper. Usually, a product can satisfy two of the three conditions, but not all three. Stablecoins provide a better, faster, and cheaper way of global money transfer.

For both businesses and consumers, stablecoins offer a 10x value proposition over traditional US dollars.

Better: Stablecoins are a more accessible product, available 24/7, 365 days a year. They can be easily transmitted globally across borders and have programmability, making stablecoins a superior product to fiat currency.

Faster: Stablecoins are undoubtedly faster, with instant settlement, rather than requiring T-minus 2 or T-minus 1 days for settlement.

Cheaper: The issuance, transfer, and maintenance costs of stablecoins are lower than fiat currency. In 2023, Stripe facilitated over $1 trillion in payments, with a fee structure starting at 2.9% plus 30 cents per domestic card transaction. On high-throughput blockchains like Solana or Ethereum L2s like Base, the average stablecoin payment cost is less than a dollar.

The Emerging Stablecoin Stack

While the stablecoin stack is continuously evolving, some new emerging layers have emerged:

· Merchant Layer - The applications and interfaces that initiate retail or commercial transactions

· Stablecoin Orchestration - Providers that offer the last-mile in/out channels, virtual accounts, cross-border stablecoin transfers, or stablecoin-to-fiat exchange

· FX and Liquidity - Providers that offer exchange of cross-border stablecoins with other dollar-pegged stablecoins, fiat currencies, or regional stablecoins

· Stablecoin Issuance - Companies or protocols that provide differentiated feature white-label stablecoins or first-party stablecoins

Similar to how cryptocurrency exchanges have emerged around the world to cater to local participants, we expect various crypto cross-border applications and processors to emerge as they cater to specific stablecoin markets.

Just like in traditional finance and payments, building moats in each part of the stack is crucial to expanding beyond the initial value proposition. We've considered which moats are defensible and can be expanded upon over time in each layer:

· Merchant Layer - The moat is built by owning the stablecoin flow of users or businesses. This provides opportunities to cross-sell other services, monetize user flows, and own the end-to-end customer experience. The Robinhood of stablecoins will follow a similar playbook.

· Stablecoin Orchestration - Licenses! Whoever gets the licenses will get the most reliable, most globally-reaching, and cheapest. Will it be developer-friendly? Look at the Stripe x Bridge acquisition to understand where the moats are here and how they form.

· FX and Liquidity - Liquidity begets liquidity, and flow begets value accrual. Any participant that can capture proprietary liquidity and price it effectively will outperform new entrants without it. This is why some large exchanges today service the majority of stablecoin flow for certain key rails.

· Stablecoin Issuance - Over time, issuance will commoditize, and the inevitable emergence of dozens of large branded stablecoins (e.g., PYUSD). As the other layers of the stack grow (i.e., merchants, business flows, and liquidity), we expect these layers will have the capability to issue their own stablecoins, whether to capture yield, build their own branded stablecoins, or construct proprietary stablecoin liquidity and flow.

As the layers of the stack gradually bundle together, these layers will consolidate over time. The merchant layer is best positioned to aggregate the other layers of the stack, thereby providing more value to the end-user, increasing profitability, and creating more revenue streams. They will have the choice of which FX trades to perform, which in/out channels to own or rent, and which issuers to use.

Furthermore, we expect stablecoin issuance to become increasingly prevalent for large fintechs and e-commerce providers that facilitate significant capital flows. The next generation of new banks and fintechs will be defined by stablecoins. Just this month, we've heard of large credit card networks like Visa, banks like JPM, and asset managers like Blackrock expressing interest in exploring their own stablecoin projects.

Looking Ahead: The Next Decade of the Digital Dollar

The tokenization of the US dollar is still in its early stages.

Even as stablecoins reach historic MAU highs, we believe their adoption will continue to grow as hundreds of millions interact with stablecoins over the next decade.