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 underlying fiat currencies, 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 was a breakthrough year for stablecoins, with adjusted trading volume exceeding around $50 trillion, transaction volume exceeding $1 billion, and involving nearly 200 million accounts.
In the previous cryptocurrency bull run, 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 - seamless cross-border payments, initially achieved by pegging to the US dollar. 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 B2C payments (such as remittances) and traditional payment methods for B2B cross-border transactions.
Cryptocurrencies have long been expected to provide 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 of hundreds of billions of dollars annually. Now, stablecoins provide the means to achieve global cross-border remittance payments through crypto channels.
As adoption of stablecoins accelerates in both B2C and B2B payment 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 these conditions at the same time, 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 currencies.
Faster: Stablecoins are undoubtedly faster, with instant settlement, rather than requiring T-minus 2 or T-minus 1 days for settlement.
Images from BVNK report
Cheaper: The issuance, transfer, and maintenance costs of stablecoins are lower than fiat currencies. 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 or Ethereum L2s like , the average stablecoin payment cost is less than a dollar.
The Emerging Stablecoin Tech Stack
While the stablecoin tech stack is constantly evolving, here are some of the emerging layers:
- Merchant Layer – Applications and interfaces originating from retail or commercial transactions.
- Stablecoin Orchestration Layer – Providers of last-mile on/off-ramp services, virtual accounts, cross-border stablecoin transfers, or stablecoin-to-fiat exchange.
- FX and Liquidity Layer – Providers of services to swap cross-border stablecoins with other dollar-pegged stablecoins, fiat, or regional stablecoins.
- Stablecoin Issuance Layer – Companies or protocols providing white-label stablecoins or differentiated debut 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 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 scale across each layer over time:
· 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 acquire the most reliable, global coverage at the cheapest price. 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, flow begets value accrual. Any participant able to 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 we'll inevitably see the launch of dozens of large branded stablecoins (e.g. PYUSD). As the other stack layers grow (i.e. merchants, business flows, and liquidity), we expect these layers will have the capability to launch their own stablecoins, whether to capture yield, build their own branded stablecoin, or construct proprietary stablecoin liquidity and flow.
As the layers 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 ability to choose which FX trades they perform, which on/off-ramps they own or rent, and which issuers they use.
Furthermore, we expect stablecoin issuance to become increasingly prevalent for large fintechs and e-commerce providers facilitating 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.
Importantly, even as exchange trading volumes fluctuate, stablecoin users continue to grow. From bull to bear markets, stablecoins have maintained dominance and expanded their digital footprint.
As cryptocurrencies rebuild the financial system from scratch, stablecoins coexist and integrate with traditional financial payment networks.
Although large companies such as Stripe, Visa, and Paypal have entered the stablecoin market, we see that new protocols and companies focused on stablecoins have a lot of opportunities.
Here are some ideas that excite us:
· Stablecoin Neobanks - The rise of mobile devices has given Neobanks tremendous value. Crypto Neobanks will not only provide best-in-class payment rails, but will also support the next generation of consumer finance applications that will aggregate payments, trading, yields, lending, and other core financial services.
· On-chain FX - While most stablecoins are currently pegged to the US dollar, we expect to see more currencies onboarded, driving the development of an on-chain FX layer. More directly, as a proliferation of yield-bearing stablecoins pegged to the US dollar offer different yield and value propositions, we expect these initial US dollar-pegged stablecoins to require an FX layer.
· Telegram Payment Rails - Telegram provides a native payment wallet, but we also see a unique opportunity to leverage new interfaces like TG mini-programs to build new payment layers on top of Telegram.
· Remittances on Crypto Rails - Remitly, Wise, Intermex, Ria, MoneyGram, Western Union. All remittance companies, each with hundreds of millions to billions in annual revenue. Remittance companies charge fixed fees, which make sense for low-value (e.g. $6 fee on a $60 transaction) or high-fee (30-100bps per transaction) transactions. Stablecoins reduce the cost of global remittances and make the process seamless. "Remittance profits are an opportunity for stablecoins." - Jeff "Stables" Besos
· Global Venmo - Build a P2P rail to take Venmo-like functionality global. Remittances are typically one-way flows, whereas this will service social commerce use cases in more bidirectional flows.
· Stablecoins Powering Treasury and Operations - As fintech expands from PayPal payments into wealth management, personal finance, payroll, corporate spend and expense management, neobanking, financial accounting and reporting, lending/mortgages and more, it has created billions in opportunities. Similarly, stablecoins present an opportunity to rebuild many of these cumbersome processes on better rails powered by stablecoins. In the near-term, treasury and operations have to deal with complex operations, making the value proposition of stablecoins disruptive.
Conclusion
Stablecoins represent a trillion-dollar opportunity. We hope to back founders who can see the future of stablecoins and are not beholden to the financial system.
