[Introduction]

As of 2024, the development of stablecoins has gone through 10 years, during which it has withstood the It has experienced multiple risk shocks and trust adjustments, and has once again entered a rapid development track since the second half of 2023, attracting widespread attention from the industry, and academia.

From the perspective of development trends, stablecoins have shown good resilience and gained increasing market recognition, while showing obvious oligopoly characteristics. , the market value share of the first two stablecoins exceeds 90%, and the market value share of the US dollar stablecoin exceeds 95%, and shows a trend of integration and development with traditional financial institutions;

From the perspective of application scenarios, stablecoins were initially mainly used for the trading of encrypted assets. However, in recent years, they have been used in conventional financial activities such as cross-border payments and foreign exchange savings, and in new financial activities such as decentralized finance (DeFi). Applications are expanding rapidly;

From the perspective of development prospects, the future development space of stablecoins depends on whether the risk of redemption and run can be solved in terms of risk management, and whether the market competition between the central bank's digital currency and the digital currency bridge can be handled in terms of development model. , whether it can cope with increasingly stringent access and compliance requirements in financial supervision.

Source: Shen Jianguang, Zhu Taihui: "Ten Years of Stablecoin Development: Trends, Applications and Prospects", "International Finance", Issue 12, 2024, pp. 68-73.

Stablecoins are digital currencies (such as USDT, USDC, DAI, etc.) issued by the private sector based on legal currency and other asset mortgages. Currently, more than 95% are based on the US dollar. Stablecoins; there are also stablecoins based on digital assets or mortgages (such as DAI, etc.), stablecoins based on mortgages of gold, silver and other physical assets (such as PAXG, etc.); in addition, there are a few unsecured stablecoins based on algorithms (such as FRAX, etc. ).

Since the launch of the first stablecoin (USDT) in 2014, the development of stablecoins has withstood many risk shocks, and has been progressing again since the second half of 2023. On the track of rapid development, the total market value as of November 2024 has been close to US$200 billion. Coupled with the rapid development of Web3.0, the development trend, application scope and future prospects of stablecoins have once again attracted widespread attention from all walks of life.

Stablecoins are issued based on blockchain technology and have a good balance between openness and stability in terms of functional characteristics. Specifically, stablecoins have good openness, support controllable anonymity, and can be directly traded peer-to-peer. , naturally has cross-border attributes; at the same time, unlike "native" cryptocurrencies such as Bitcoin, stablecoins are relatively stable in value by anchoring to traditional legal currencies such as the US dollar and the euro, or to real assets such as gold.

< p style="text-align: left;">Stable currency is a bridge between central bank digital currency (digitization of legal currency) and digital assets (algorithm-based Token).

In the field of digital assets (encrypted assets), there is a distinct pyramid structure of liquidity: at the top are stablecoins anchored to legal currencies, followed by Bitcoin and Ethereum, and finally ERC20-type encrypted assets and others The native token of the blockchain is NFT (non-fungible token) (Zou Chuanwei et al., 2023).

As of November 2023, the total market value of digital assets has exceeded US$3.27 trillion. In most cases, digital assets can only gain real purchasing power after being converted into legal tender.

Stablecoins, especially U.S. dollar stablecoins, are the unit of account, payment medium and value storage tool for digital assets and crypto-asset markets. The transaction volume has already exceeded that of the two largest crypto-assets - Bitcoin and Ethereum. Total.

01 The development trend of stable coins

(1) From the perspective of total amount, Stablecoins resume rapid growth after experiencing shock

Three major factors have driven the rapid growth of the stablecoin market from 2017 to 2021. USDT and USDC are the two largest stablecoins in the world, accounting for about 90% of the stablecoin market. The trends of the two basically represent The trend of the entire stablecoin market

Before 2017, the market value of USDT had been below US$7 million. However, starting from 2017, thanks to the digital assets entering the bull market, Tether being launched simultaneously on three major exchanges, and the issuance of virtual tokens being strictly prohibited, USDT It has grown rapidly, reaching nearly US$1.4 billion at the end of 2017, and has maintained rapid growth for nearly five years since its launch. The growth trend of USDC will be similar to USDT from its launch to May 2022.

UST’s collapse caused the stablecoin market to experience a correction for about a year.

In the first half of May 2022, the value of TerraUSD (UST), the world's third largest stable currency, fell from US$1 to a minimum of US$0.04 in 5 days. The entire stablecoin market has had a huge impact.

USDT’s market value dropped from US$83 billion to US$65.8 billion in mid-July 2022, and did not return to US$83 billion until May 2023.

USDC’s market value has dropped from about US$55 billion in May and June 2022 to about US$45 billion at the end of 2022; in March 2023, it suffered from Silicon Valley The impact of bank explosions and regulatory decoupling investigations (at that time USDC's reserve funds were deposited in Silicon Valley Bank), the market value further fell to about US$25 billion by December 2023.

Stablecoins will gradually resume rapid growth starting in the second half of 2023.

With the subsidence of risk shocks and the improvement of the transparency of stablecoins, the stablecoin market has returned to the track of rapid growth in the second half of 2023, especially since November.

As of November 24, 2024, the total market value of stablecoins has reached nearly 200 billion U.S. dollars, of which USDT’s market value has exceeded 130 billion U.S. dollars, exceeding 2022 1.5 times before the drop in May 2020; the market value of USDC exceeded US$39 billion, which is still some distance from the high of US$56 billion in May and June 2022.

(2) From a structural point of view, the stablecoin market shows obvious oligopoly characteristics

From the perspective of entities, the stable coins issued by Tether and Circle account for about 90%. USDT was launched in November 2014, and USDC was launched in October 2018. They are the two largest stablecoins in the world, accounting for about 70% and 20% of the stablecoin market respectively. The trends of the two basically represent the entire Stablecoin market trends.

From a currency perspective, U.S. dollar stablecoins are the main channel for capital entry and exit in the crypto asset market . Current stablecoin ownerIf it is dominated by fiat currency stablecoins, among which the US dollar stablecoin serves as the unit of account, payment medium and value storage tool in the crypto asset market, the transaction volume has already exceeded the sum of the two largest crypto assets - Bitcoin and Ethereum.

The two largest stablecoins, USDT and USDC, are both U.S. dollar stablecoins. Together with other types of U.S. dollar stablecoins, the supply of U.S. dollar stablecoins accounts for more than 95%. In addition, these stablecoins are mainly issued on the Ethereum blockchain, and blockchains such as TRON are gaining increasing attention.

(3) From a model perspective, the cooperation between stable coins and traditional financial institutions continues to expand

In terms of payment institutions, in 2020, the American online payment company PayPal has begun to support consumers to trade cryptocurrencies through PayPal and Venmo accounts, and launched PayPal USD, a stable currency pegged to the US dollar; in September 2024, it announced that it would allow merchants to trade cryptocurrencies through their business accounts Buy, hold and sell cryptocurrencies.

In October 2024, the American online payment company Stripe acquired the stablecoin platform Bridge for US$1.1 billion, which is the largest acquisition in the cryptocurrency field to date.

At the same time, Stripe has restored services for U.S. businesses to make crypto payments through the stablecoin USDC on Ethereum, Solana, and Polygon.

In terms of financial institutions, in September 2024, Japan’s three major banks-Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corporation (SMBC) and Mizuho Bank (Mizuho) jointly launched a cross-border payment system called "Project Pax": using stable coins to replace intermediary banks in the traditional cross-border payment model, thereby improving efficiency and reducing costs.

The project integrates SWIFT payment information into the stablecoin system. Banks can use stablecoins for settlement, but corporate customers do not need to contact or understand the stablecoins. operate.

In terms of asset allocation, in April 2023, a survey of 256 institutions around the world by EY-Parthenon (2023) showed that although some institutions Investors are cautious about investing in cryptocurrencies and assets, but more and more institutional investors are optimistic about the investment prospects in this field and will increase investment allocation: 25% in 2022of institutional investors will increase their holdings of cryptocurrencies, crypto-assets and related products. 38% of institutional investors will increase their holdings in 2023, and 69% of institutional investors are expected to increase their holdings from 2024 to 2025, among which asset management companies and hedge funds are expected to increase their holdings. The proportions improved the most (81% and 71% respectively).

02 Application Scenarios of Stablecoins

(1) Stablecoins in cross-border transaction settlement

After accumulating a large number of users and application scenarios in the crypto asset market, the US dollar stablecoin has been expanding into mainstream payment scenarios. Since 2022, blockchain-based Binance Pay’s global monthly active users and monthly transaction volume have increased nearly five times, reaching approximately 13.5 million users and approximately 1.96 million transactions.

Castle Island Ventures and Brevan Howard Digital (2024) estimates show that in the 12 months before May 2024, the payment and settlement volume of stablecoins reached approximately US$2.5 trillion, which is 10 times its payment and settlement volume in 2020; on-chain stablecoins monthly There are 2000 Ten thousand addresses are actively trading, and more than 120 million addresses hold non-zero stablecoin balances; the total stablecoin settlement in 2023 is conservatively estimated at 3.7 trillion U.S. dollars, reaching 2.62 trillion U.S. dollars in the first half of 2024, and is expected to exceed 52,800 U.S. dollars throughout the year billion dollars.

Stablecoins have obvious advantages in payment time and cost.

In terms of time, existing bank cross-border remittances usually take up to 5 working days to settle, among which digital payments based on cross-border inter-bank communication systems , about 30% of remittances take more than a day to complete; for cross-border payments based on blockchain, 100% of transactions will be completed in less than 1 hour.

In terms of cost, according to World Bank data, the average cost rate of cross-border remittances under the traditional model in the first quarter of 2024 is 6.35%, and some regions are still More than 7%; but the average cost of sending stablecoins through high-performance blockchains such as Solana is about $0.00025, Binance Pay Pay) and other borderless peer-to-peer stablecoin transfers have lower fees. When the transfer amount exceeds 140,000 USDT, a fee of US$1 is charged.

However, compared with bank account payments, current stablecoin cross-border payments have obvious shortcomings in payment capabilities and stability (Binance Research, 2024).

(2) The actual use scenarios of stable coins show a diversified development trend

The use scenarios of stablecoins in the real world continue to expand.

In addition to the trading of digital assets/encrypted assets, stablecoins have also been rapidly used in currency substitution in recent years (to avoid significant fluctuations or depreciation of local currencies). Used as a substitute for U.S. dollar bank accounts (to avoid the impact of the lack of U.S. dollar banking services), for inter-business payments and consumer payments, for cross-border trade settlement and other financial investments and physical investments, etc.

September 2024, with support from Visa, Castle Island Ventures and Brevan Howard Digital (2024) survey on the use of stablecoins in five emerging markets of Brazil, India, Indonesia, Nigeria and Turkey shows that the main purpose of using stablecoins is still to trade cryptocurrencies or NFTs, but other uses also account for a higher proportion, 47 One of the main purposes of % of the respondents is to store funds in US dollars, 43% of the respondents do so to obtain a better currency exchange rate, and 39% of the respondents do so to earn income.

Stablecoins are gradually being integrated into the daily financial activities of the public. The use of stablecoins in emerging markets extends beyond traditional crypto trading.

Castle Island Ventures and Brevan Howard Digital (2024) on Five The survey on stablecoin usage frequency and user behavior not only quantified the popularity of stablecoins, but also revealed its wide application in currency substitution, cross-border payments and savings tools, demonstrating the diversified development trend of stablecoins in emerging markets. : 69% of those surveyed 39% of respondents use stablecoins for currency substitution, 39% of respondents use stablecoins to pay for goods and services, 39% of respondents use stablecoins for cross-border payments, and another 20% to 30% of respondents use stablecoins to pay for goods and services. Stablecoins are used for salary payment and business development.

(3) DeFi ushered in rapid development with the support of stable coins

Since 2024, a large amount of capital has poured into decentralized finance ( DeFi), the total locked value (TVL) increased from US$54.4 billion at the beginning of the year to US$94.1 billion, an increase of 72.8%.

At the same time, the number of DeFi deduplication users in June 2024 has also increased from 4.9 million at the beginning of the year to a new high of 8.9 million. Among them, almost all DeFi sub-industries have experienced significant growth, and it is no longer just Decentralized exchanges (DEX) will drive growth. By June 2024, the total on-chain value locked (TVL) of decentralized lending will reach $33.7 billion, an increase of 51.7% from the beginning of the year.

Relative to USDT, USDC has become the first choice for de-neutralized financial protocols due to its transparent compliance and high stability.

At present, major DeFi protocols such as MakerDAO, Compound, Aave, and Curve are the main supporters of USDC. USDC can be used as collateral for lending and trading, or as an asset in a liquidity pool to earn interest, etc. These The development has allowed USDC to go beyond a simple means of exchange or value storage

03 The development prospects of stable coins

The future development prospects of stablecoins will depend on whether they can effectively respond to the following three challenges.

(1) In terms of risk management, It is necessary to deal with the risk of customers being unable to redeem their fiat currency in full and losing their keys

From the perspective of issuance and operating models, fiat currency deposits in bank accounts are protected by deposit insurance, and fiat currency reserves of non-bank payment institutions are centrally deposited in the central bank, enjoying stable interest income on excess deposit reserves, and there is no misappropriation or risk of loss

However, the current investment in stablecoin advances lacks clear investment products and risk requirements. Once the investment suffers losses, stablecoins issued in a 1:1 ratio with legal currency reserves will experience concentrated "runs" and fail to comply with 1 : 1 Risk of full redemption

At the same time, in stable coins.In the wallet, only the private key can sign transactions and authorize asset transfers. However, the key of stable currency is a long string, which is difficult for users to memorize and is very easy to lose. Once lost, it means that the user will lose control of the wallet. Control of stablecoins; at the same time, the distributed nature of stablecoins means that there is no central organization that can help users retrieve their private keys or restore access to their wallets.

Different from this, bank accounts and non-bank payment accounts have strong customer information registration and KYC (Know Your Custom) requirements, plus centralized accounts Management mechanism, if the user account password is lost, the password can be retrieved with the assistance of a centralized management organization.

(2) In terms of development model, the payment competition between central bank digital currency and digital currency bridge needs to be well handled

The advantages of stablecoins in cross-border payment and settlement are real-time payment settlement and low payment costs, but their carrying capacity and stability in cross-border use are poor. The combined development of "central bank digital currency + multilateral digital currency bridge" will greatly improve the existing cross-border payment system and have a competitive impact on the application and promotion of stable coins in cross-border payments.

Currently, various countries are actively exploring the development of central bank digital currencies. At the same time, BIS is coordinating with multiple parties to build a "multilateral digital currency bridge": a multilateral cross-border digital currency based on distributed ledger technology. It is an international payment platform where all participants use a synchronized and real-time updated account book; using a single system architecture (Single System Model), central banks and commercial banks in participating regions can directly access the platform.

According to BIS (2024) survey statistics, countries and regions are actively testing central bank digital currencies at the wholesale and retail ends, and 100 countries and regions are exploring experiments. At the same time, the "Multilateral Digital Currency Bridge" has entered the minimum viable product stage and can also achieve cross-border point-to-point payment and simultaneous settlement. As of October 2024, more than 30 and regional central banks are following up and observing.

The "Multilateral Currency Bridge" platform carries out cross-border payments, and both parties to the transaction do not need to keep separate records. accounts, cross-border transactions can be settled simultaneously, and it can also be applied to dual-currency cross-border transfers (cross-border foreign exchange transactions) to achieve simultaneous settlement of foreign exchange transactions (PvP).

Compared with the traditional cross-border payment model, the "Multilateral Currency Bridge" has the function of "point-to-point" payment. Benefit fromWith the use of distributed ledger technology, banks on the platform can realize "payment and settlement" without opening accounts with each other or jointly opening accounts with third-party institutions, and realize synchronous settlement (PvP) of foreign exchange transactions, and the entire process is completed in real time. , greatly improving the efficiency of payment and settlement.

At the same time, the "Multilateral Currency Bridge" uses modular construction to separate and modularize different functions, improving the scalability of the platform, participation and regional There is no need to establish a local CBDC system to join the "Multilateral Currency Bridge", which greatly reduces the barriers to entry.

However, it needs to be pointed out that although the programmability based on smart contracts improves the efficiency of payment and settlement, some users are worried about being able to control their own rights to CBDC. Use, and due to the monitoring of transactions, privacy cannot be fully protected.

(3) In terms of financial supervision, uncertainty will still be the most important factor affecting the development of stable coins

Stablecoins have a substitution effect on the currency of the user's location and region. Currently, only a few countries and regions such as the European Union have formulated relevant laws. Other countries and regions regulate stablecoins in payments and asset transactions. It is not yet clear that regulatory uncertainty will have a greater impact on the development of stablecoins and digital assets, as well as the development of high-compliance stablecoins (USDC, etc.) and low-compliance stablecoins (USDT, etc.).

In October 2020, the Financial Stability Board proposed high-standard regulatory recommendations for the steady development of stablecoins.

The core of the FSB regulatory recommendations is to fully incorporate stablecoin-related activities and functions into supervision in accordance with the principle of "same business, same wind direction, and same supervision" (FSB, 2020), specifically including: According to the functions and functions of stablecoins The activity clarifies specific regulatory entities and defines the product attributes of stablecoins (whether stablecoins are securities or commercial products, etc.), which institutional licenses stablecoin issuers need to hold (whether they hold a money transfer service provider license or a banking license, etc.); clarify specific regulatory measures for stablecoin-related activities, such as responding to redemption "runs" on stablecoins requirements, anti-money laundering and anti-terrorist financing requirements, etc.; strengthen cross-border regulatory coordination and cooperation (especially in cross-border payments, etc.).

The European Union is leading the way in regulating crypto assets.

In April 2023, the European Parliament officially passed the "Crypto-Asset Market Supervision Act" (MiCA), clarifyingIt stipulates the types of crypto-assets covered by the regulation, the transparency and disclosure requirements for crypto-assets when they are issued, made available to the public and traded on trading platforms; the authorization and disclosure requirements for crypto-asset service providers, asset reference token issuers and electronic currency token issuers. Supervision requirements, as well as requirements for its operation, organization and governance; protection requirements for holders when crypto assets are issued, provided to the public and traded; protection requirements for customers of crypto asset service providers; to prevent insider trading and illegal disclosure of insider information information and market manipulation.

With MiCA officially taking effect, cryptocurrency exchange OKX has stopped supporting USDT trading pairs in the EU, and Binance and Kraken are considering delisting USDT on their European platforms. ; However, Circle, the issuer of USDC, announced in July 2024 that USDC and EURC stablecoins have complied with MiCA, becoming the first compliant global stablecoin issuer under MiCA regulations.

It is expected that licensed access and compliance supervision for stablecoin operations will be the general trend in the future. In December 2023, the Hong Kong Monetary Authority and the Hong Kong Financial Services and Treasury Bureau jointly issued a public consultation document on the supervision of stablecoins and digital assets, requiring stablecoin issuers to apply for relevant licenses from the Monetary Authority and meet relevant capital requirements. Stabilization mechanism, compliance with anti-money laundering and terrorist financing regulations, etc.

The United States is also formulating a regulatory framework for stablecoins and digital assets. The current direction is that stablecoin operations must comply with existing regulatory and legal regulations, such as meeting Financial Crimes Enforcement Network (FinCEN) anti-money laundering and customer identity verification (KYC) requirements, obtaining state currency exchange licenses, and more.