Back at an all-time high circulating supply, stablecoins are becoming 'systemically important': Bernstein

Blockchain-based stablecoins, pegged to fiat currencies like the U.S. dollar, are reaching a level of systemic importance, according to analysts at research and brokerage firm Bernstein.

Stablecoin issuers such as Tether USDT +0.066% and Circle now comprise the 18th largest holders of U.S. treasuries alongside sovereign nations, just behind Saudi Arabia and ahead of South Korea, Gautam Chhugani, Mahika Sapra and Sanskar Chindalia wrote in a note to clients on Thursday.

USDT and USDC +0.045% hold more than $125 billion in U.S. treasuries combined, according to the analysts.

“Stablecoin businesses remain highly profitable with float income from U.S. treasuries retained by issuers e.g Tether made a net profit of $5.2 billion in the first half of 2024,” they said.

Major foreign country holders of U.S. treasury securities. Image: Bernstein.

Onchain stablecoin monthly payment volume has tripled over the last 12 months to $1.4 trillion, the analysts noted, with stablecoins accounting for around 50% of all onchain transaction volumes.

Monthly active users are touching new highs of around 22 million, and total stablecoin wallets with non-zero balances currently stand at 120 million. However, “stablecoin usage has decoupled from crypto and stablecoins are increasingly being held for non-crypto use cases,” they said.

The stablecoin market is also continuing to see new entrants, with PayPal and Paxos’ partnership to issue PYUSD now approaching approximately $1 billion in circulation. Ripple recently announced plans to issue a new stablecoin for cross-border payments. On Wednesday, reports suggested fintech firm Revolut was also looking to get into the stablecoin game.

Other drivers of stablecoin growth include providing U.S. dollar savings access for international users, propagating digital dollars beyond the U.S., acting as the primary base currency for trading in crypto and enabling users to earn yield on DeFi platforms, and offering the cheapest cross-border payments rail — able to transfers thousands of dollars at 1 to 2 cent fees, the analyst said.

Stablecoin supply all-time highs

Having previously peaked during the bear market of 2022 as crypto traders began cashing out of some of their more volatile digital asset investments, stablecoin circulating supply is now back at all-time highs of nearly $180 billion, according to The Block’s data dashboard.

Tether’s USDT remains the dominant stablecoin, with a market cap of around $120 billion , followed by Circle’s UDSC at roughly $35 billion .

“Tether’s integration with global offshore exchanges and its cross border payments usage in non-U.S. markets continues to be the key driver,” the analysts said, while “Circle USDC benefits from its partnership with Coinbase.”

The Ethereum blockchain dominates stablecoin transaction volume, accounting for around 45% of the total transfer volume, according to Bernstein, followed by Tron and Solana.

Changing users behaviors

In a recent survey of crypto users by Visa, Castle Island Ventures, Artemis and Brevan Howard Digital across Nigeria, Indonesia, Turkey, Brazil and India, some 50% of respondents said they were holding stablecoins to trade crypto and NFTs. Forty-seven percent said they were using them to save money in U.S. dollars, 43% for improved currency conversion rates and 39% to earn yields.

The results underscore that non-crypto uses of stablecoins are a growing segment of the economy, the Bernstein analysts said. Among such use cases, currency conversion, paying for goods or services and conducting cross-border transactions are the most popular, they noted.

Younger demographics, under 35 years of age, increasingly hold a greater proportion of their assets in stables, according to the survey, with 35% of 18 to 24-year-old respondents in the emerging markets holding more than 25% of their portfolio in stablecoins compared to 17% in the 45-54 age bracket.

The opportunity to earn a better yield is the most popular reason for choosing stablecoins over U.S. dollar bank accounts among the younger generation, followed by greater trust, more stable value and less likely government intervention, the analysts said.