From theblock by Brian McGleenon

Quick Take

Standard Chartered and Zodia Markets analysts predict that stablecoins will see significant growth in adoption, potentially representing 10% of U.S. M2 transactions in the future.

"At present, stablecoins are equivalent in size to only 1% of U.S. M2 transactions and just 1% of FX transactions, but as the sector becomes legitimised, a move to 10% on each measure is feasible," Standard Chartered Global Head of Digital Assets Research Geoff Kendrick and Zodia Markets co-founder Nick Philpott said in a report on Thursday.

The M2 money supply is a key measure of the total money supply in an economy that includes all the money in circulation plus other assets that are easily convertible to cash.

According to the analysts, the primary driver for this growth will be the regulation of stablecoins in the U.S. During the Biden administration, three major bills were introduced to establish regulatory frameworks for banks to issue stablecoins, though little progress was made. However, Kendrick and Philpott see the incoming Trump administration as having the potential to make more substantial progress in stablecoin regulation, which could accelerate the sector's development.

The opaque fee structure of legacy payment systems

The analysts also highlighted the limitations of the current global financial infrastructure. The correspondent banking system and SWIFT, which have largely remained unchanged since the adoption of Real-Time Gross Settlement (RTGS) systems in the early 1990s, charge fees based on membership, transaction volume, and discounts. Settlement is often governed by a price-time basis, which is opaque to many customers. "Settlement is governed on a price-time basis that is in effect a queue based on the ‘first come, first served’ principle," the analysts said.

Thursday's Standard Chartered report noted that stablecoins are increasingly being used beyond just trading collateral, with growing applications in cross-border payments, payroll, trade settlement, and remittances. The report cited a YouGov survey that found that stablecoins are gaining traction in emerging markets, particularly in Brazil, Turkey, Nigeria, India, and Indonesia.

The survey of 500 adults in each country revealed several key insights about the growing use of stablecoins. Users value the ability to hold tokenized representations of fiat currencies, primarily the U.S. dollar, directly in their own custody, without having to rely on potentially unreliable or inaccessible bank accounts.

Stablecoins are becoming increasingly popular for various uses, including cross-border payments, currency substitution, and accessing higher-yield financial products. Adoption is accelerating in these markets, with 69% of users citing currency substitution as the most common use for stablecoins, followed by 39% using them for paying for goods and services, and another 39% using them for cross-border payments.

The total market capitalization of stablecoins has reached a new all-time high of $190 billion, surpassing the previous record of $188 billion set in April 2022, before the collapse of TerraUSD. The majority of the market is dominated by fiat-backed coins such as USDT at 73% and USDC at 21%. USDT is now the third-largest digital asset overall, following Bitcoin and Ethereum.