Stablecoins have emerged as a force in global finance, with transaction volumes reaching $27.6 trillion last year and mainstream financial institutions increasingly drawn to their potential, The Economist reported Monday.
Tether, the market leader holding $113 billion in assets, now controls 70% of a rapidly expanding ecosystem that’s moving beyond cryptocurrency trading into everyday payments, remittances, and wealth preservation in inflation-prone economies.
In Istanbul’s Grand Bazaar, traders deal millions of dollars daily, mostly exchanged for stablecoins. Unlike volatile cryptocurrencies like Bitcoin, stablecoins maintain a steady value pegged to traditional currencies, typically the U.S. dollar, and are backed by reserves of cash and government bonds.
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The market has evolved, with stablecoin activity accounting for two-fifths of all transactions on public blockchains in 2023, up from just one-fifth in 2020. According to data cited by The Economist, their utility extends well beyond crypto trading.
Turkey has become the world’s largest stablecoin market relative to economic size, with purchases alone worth 4.3% of GDP in the year ended March 2024.
Nearly half of stablecoin users in emerging markets are using them as a store of value, according to a joint survey by Castle Island Ventures and Visa (NYSE:V) across five countries including Turkey.
Bernstein, a broker, said that stablecoins’ market capitalization has increasingly decoupled from broader cryptocurrency trends as they gain real-world adoption. The separation is a shift in how digital assets function in global markets.
Tether generates substantial revenue by investing its reserves, with 72% of its assets currently held in U.S. Treasury bonds. Rising yields have transformed this strategy into a lucrative income stream. However, its dominant position raises systemic concerns.
Financial experts warn that a loss of confidence in Tether could trigger market instability similar to the 2022 collapse of Terra-Luna, an algorithmic stablecoin system. Rajeev Bamra, Moody’s Head of Strategy, Digital Economy told The Economist that Tether’s lack of transparency compounds the risks.