Authors: Ryan Barney and Mason Nystrom, Partners at Pantera Capital
Compiled by: 0xjs@Jinse Finance
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 the crypto coin is the more quietly carried crypto adoption banner of 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% today. 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 crypto space. 2024 is a breakout year for stablecoins, with adjusted trading volume exceeding $50 trillion, transaction volume exceeding $1 trillion, and nearly 2 billion accounts involved.
In the previous crypto bull run, stablecoins saw impressive growth, but this time, the applications of stablecoins have gone beyond the DeFi ecosystem. Over the past few years, stablecoins have demonstrated their core value proposition - frictionless cross-border payments, initially achieved by pegging to the US dollar. Accordingly, 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 (e.g. remittances) as well as B2B cross-border transactions compared to traditional payment methods.
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 B2C and B2B payment domains, on-chain stablecoin supply and transaction volume 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 those conditions, but not all three. Stablecoins provide a better, faster, and cheaper way to move money globally.
For both businesses and consumers, stablecoins offer a 10x value proposition compared to traditional US dollars.
Better: Stablecoins are a more accessible product, available 24/7, 365 days a year. They can be easily transmitted globally 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 to settle.
Images from BVNK report
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 constantly evolving, some new emerging layers have emerged:
Merchant Layer - 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 white-label stablecoins or first-party stablecoins with differentiated features
Similar to how crypto 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 as 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 scale 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 acquire the most reliable, globally-reaching infrastructure at the lowest cost. 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 outcompete 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 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 stablecoin, 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 ability to choose which FX transactions they perform, which on/off-ramps they own or rent, and which issuers they utilize.
Furthermore, we expect stablecoin issuance to become increasingly prevalent for large fintech companies 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.
The important thing is that the number of stablecoin users continues to grow, even in the face of fluctuations in trading volume on the exchanges. From bull market to bear market, stablecoins have taken the lead and expanded their digital influence.
As cryptocurrencies rebuild the financial system from scratch, stablecoins also exist and integrate into traditional financial payment networks.
While large companies like Stripe, Visa and Paypal have entered the stablecoin market, we see a lot of opportunities for new protocols and companies focused on stablecoins.
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 channels, 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 forex - While most stablecoins are currently pegged to the US dollar, we expect to see more currencies on-chain, driving the development of the on-chain forex layer. More directly, as a large number of yield-bearing stablecoins pegged to the US dollar offer different yields and value propositions, we expect these initial US dollar-pegged stablecoins to require an forex layer.
Telegram payment rails - Telegram provides a native payment wallet, but we also see a unique opportunity to build new payment layers on top of Telegram using new interfaces like TG mini-programs.
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 transactions (e.g. $6 fee on a $60 transaction) or high-cost (30-100bps per transaction). 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 P2P rails to take Venmo-like functionality global. Remittances are typically one-way flows, while this will serve social commerce use cases in more two-way flows.
Stablecoins supporting financial management and operations - As fintech expands from PayPal payments, it has created billions in opportunities in wealth management, personal finance, payroll, corporate spend and expense management, neobanking, financial accounting and reporting, lending/mortgages, and more. Similarly, stablecoins provide an opportunity to rebuild many of these cumbersome processes on better rails supported by stablecoins. In the near term, financial management 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 support founders and visionaries who can see the future of stablecoins, unencumbered by the financial system.
