Stablecoins in 2024: Growth, Challenges & Opportunities
Analyzing its market capitalization, top issuer and upcoming trends
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This week, we’re analyzing the rising demand for stablecoins in the current cycle, along with USDT achieving its highest market capitalization to date. We examine the overall market capitalization of all stablecoins across various cycles, their respective individual market values, and finally, we delve into the expanding sector of yield-generating stablecoins.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- Bitcoin fees dropped by 30% for the second week straight as ETF flows and ordinals speculation slow down
- Fees on Ethereum decreased by 7%, with DEX and NFT volumes falling
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- Bitcoin recorded an eight consecutive week of net inflows into CEXs, but the smallest net inflows since November
- Half a billion of ETH was withdrawn on net from CEXs, making it $1.2B in outflows over the last month
Stablecoins in 2024: Growth, Challenges & Opportunities
Stablecoins serve as a bridge between conventional finance and the cryptocurrency realm, acting similarly to “cash” within the crypto ecosystem. The growth in market capitalization of stablecoins indicates an influx of funds from traditional finance into the crypto world, resulting in more liquidity circulating within the cryptocurrency market. This explains the direct correlation observed between the bull and bear cycles in the crypto market and the expansion and contraction of their market capitalization. In bull markets, as more money flows into the ecosystem, the market capitalization rises. Conversely, during bear markets, money exits the crypto ecosystem, leading to a decrease in market capitalization.
$9 Billion Increase Since October 2023 — Although numerous tokens hit their lowest market prices in November 2022, the bottoming out of the stablecoin market took a longer time to materialize.
- The sustained upward trend since the fourth quarter of 2023 further reinforces the possibility of an upcoming bull market cycle.
- This growth in the stablecoin market hasn’t been uniform across all issuers. During the last quarter, there have been notable declines in the market capitalization of major stablecoins such as BUSD.
USDT achieved a remarkable milestone, reaching an all-time high in market capitalization of $94 billion.
$2.9 Billion in Net Profit for Q4 2023 — Tether announced a record-breaking net profit in their most recent quarter.
- Several dynamic shifts have contributed to this increase in market capitalization and the profit surge for Tether.
- During the last bull market, the two main competitors faced significant hurdles: the US government intensified its scrutiny of BUSD, and USDC grappled with the crisis stemming from the collapse of regional banking.
- This situation has positioned Tether to capitalize on these developments, thereby enhancing their presence and facilitating their expansion.
Another area where their growth has become evident is in the sector of yield-earning stablecoins, which have seen a rapid rise in TVL throughout 2023 and now constitute a larger segment of the market.
$4.3 Billion under the RWA Category — The rise in US interest rates throughout 2023 provided momentum and fueled growth in this category
- Many believe that the potential market for yield-bearing stablecoins could be as large as, or even larger than, the current total addressable market for stablecoins
- Just as traditional finance investors typically don’t let cash sit idle, the same principle should apply in the crypto space. In this context, dollars should be actively generating yield for investors, instead of that yield being accrued by institutions like Tether or Circle.
- These emerging stablecoins still need to establish a solid foundation within the DeFi ecosystems to be on par with giants like USDT or USDC. This requires developing deep liquidity in decentralized exchanges (DEXes) and integration into lending protocols.
Throughout 2023, the stablecoin market has undergone significant changes, highlighted by the challenges encountered by BUSD and USDC, paving the way for USDT’s opportunities. Additionally, the rise of yield-bearing stablecoins has emerged as a key trend, potentially transforming the future landscape of the market.
