The Rise of Stablecoins: A Comprehensive Overview

The usage of stablecoins has grown quite significantly over the last four years, mainly rising over 16-fold, implying pervasive adoption across the mainstream economy. Market turnover is also reflected in coins, where, for example, in April, the monthly volume of operations reached $1 DN. 

As of the data gathered from Token Terminal, the overall locked-up value is at about $68 trillion. In turn, by October 2020, the figure had reached $100 billion, meaning that over the mentioned time, there had been 16 times more investments. However, looking at the monthly transferring amount, there was a slight reduction in the transferring amount for stablecoin in May 2024.

The increasing market capitalization of stablecoins shows relative investor confidence, defined by a smooth increase in capital in the market. Stablecoins’ total market cap has now exceeded $162 billion, a figure that is 24% more than back on the 1st of January 2021, when the total stood at about $130 billion.

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Main Drivers of Growth

There is no specific reason why stablecoin transfer volume increased significantly. Firstly, stablecoins provide a way to mitigate the risks associated with trading cryptocurrencies, making them appealing to specific market participants. Additionally, the growing adoption of decentralized financial applications that rely on stablecoins for their operations has significantly enhanced their popularity.

Thirdly, the utilization of stablecoins in conventional financial frameworks and payment platforms has overall increased both adaptability and convenience of utilizing stablecoins when making payments. This innovation is evident in stablecoins, applied in traditional financial industries for cross-boundary transactions and individual compensation, like wages.

Based on the available reports from Visa, trading volume of stablecoins has recorded massive expansion with a figure of approximately $3.3 trillion monthly. There are several uses of coins, of which the main uses include cross-border payments, making payouts, as well as payment through merchants.

Regulatory Environment and Associated Risks

Specified regulation in the field of various financial sectors related to stablecoin has made investors trust the necessity of their usage. There are also still ongoing discussions and debates specifically on future rules and regulations concerning stablecoins in the United States.

Due to their inherent nature, stablecoins come with several risks, including legal risks such as regulatory actions and compliance issues, governance challenges, operational vulnerabilities, exposure to money laundering and terrorist financing, consumer risks, and potential implications for monetary policies and financial stability.