Peter Johnson, Co-Head of Venture Investments at Brevean Howard Digital, discusses the rise and significance of stablecoins in blockchain. Topics include the dominant use case of stablecoins, decoupling from market volatility, profitability of issuers, interaction with CBDCs, and their relationship with Bitcoin.
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Quick takeaways
Stablecoins have become the dominant use case for blockchains, with approximately 70% of the value transferred involving stablecoins, indicating their widespread usage and value.
Stablecoins have exhibited decoupling from exchange volumes, highlighting their utility in real-world applications and transactions beyond speculative trading.
Deep dives
The Rise of Stablecoins
Stablecoins have experienced an exponential rise, with their market cap surpassing $125 billion. In 2022 alone, stablecoins settled around $11 trillion, comparable to the transaction volume of Visa. This growth indicates a high demand for US dollars around the world, as stablecoins provide a convenient and cost-effective way for users to hold and transact in dollars. Notably, stablecoins have become a dominant use case for blockchains, with approximately 70% of the value transferred on blockchains involving stablecoins.
Massive Adoption and Usage
Stablecoins have seen significant adoption globally, with 25 million addresses holding at least $1 worth of stablecoins. While this number serves as a rough proxy for the number of users, it illustrates the widespread usage and value of stablecoins. Moreover, there are approximately 5 million active addresses weekly engaged in stablecoin transactions. This growth of active addresses demonstrates the increasing popularity and acceptance of stablecoins as a means of transacting value.
Decoupling from Exchange Volumes
Stablecoins have exhibited decoupling from exchange volumes, indicating their use beyond speculative trading. While exchange volumes have decreased by 60%, stablecoin volumes have remained relatively stable, highlighting their utility in various use cases beyond trading. This decoupling highlights the growing adoption of stablecoins for real-world applications and transactions, rather than solely relying on exchanges.
Competition and Future Trends
Tether currently dominates the stablecoin market, representing 69% of the stablecoin supply. However, competition from other stablecoins, such as USDC, has significantly impacted Tether's market share. Additionally, emerging players like PayPal entering the stablecoin space present further competition. Looking ahead, the introduction of interest-bearing stablecoins and the potential issuance of central bank digital currencies (CBDCs) may intensify competition and impact stablecoin market dynamics. Despite this, stablecoins and cryptocurrencies like Bitcoin can coexist as they serve different purposes, with stablecoins facilitating payments and cryptocurrencies like Bitcoin serving as a store of value.
Peter Johnson is the Co-Head of Venture Investments at Brevean Howard Digital. In this conversation we talk about the epic rise of stablecoins, how they have become the killer app of blockchain technology, where stablecoins are being used, why they are being used, and who is using stablecoins.
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Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/
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