Stable Standard - Week of December 30th, 2024
Analyzing the future of card payments vs. stablecoins, USDC's year in review, and insights from the Tokenized Podcast's 2025 predictions episode
Will stablecoins ever replace credit cards?
Bridget Harris, an investor at Founders Fund, wrote a piece outlining a shift occurring in the consumer payments landscape. Alternative methods to credit cards such as pay by bank are gaining popularity and are projected to grow 3.5x between 2017 and 2027. This is because the duopoly of credit card networks (Visa and Mastercard) charges merchants 2-3% on every transaction. Large retailers such as Walmart and Dwolla are beginning to launch pay by bank functionality to bypass this credit card fee.
While I agree that this shift to alternative consumer payment methods will continue to grow, I'm not convinced that stablecoins will become the rail for this. In Scott Wessman's tweet I shared the other week, he points out that some payment methods don't internalize the cost of services such as risk and refunds. Once you include those externalized costs, the true cost of stablecoins is much higher. As Simon Taylor (Head of Strategy at Sardine) notes, Stripe just charges 30bps less for pay by bank vs pay by card even though the underlying rails of pay by bank are cheaper than the card network. They need to account for the cost of payment risk and refunds.
I remain skeptical that we will see consumer stablecoin adoption take off domestically in the US. Stablecoins may become a rail for merchant settlement underlying the card networks, but their real value lies where people have limited access to save or transact in US dollars, transactions take >1 day, and existing payment infrastructure is immature leading to illiquidity and high spreads. This ends up being much more relevant for cross-border payments in specific corridors than US domestic payments. Rob Hadick (GP at Dragonfly Capital) captures this well in the latest Bloomberg article on stablecoins, "There is both significant demand from end users in receiving US dollars, which can be near impossible using non-stablecoin rails, but also from senders who want to bypass the correspondent banking system which can be slow, costly, and have high failure rates."
Also, check out Bridget’s previous article on the applicability of stablecoins in cross-border payments.
2025 Stablecoin Predictions from the Tokenized Podcast
Tokenized Podcast Hosts Simon Taylor and Cuy Sheffield shared their 2025 crypto predictions alongside Yuval Rooz, CEO @ Digital Asset, in their latest episode. Some of the highlights:
Simon predicts that US regulatory guidance for crypto and stablecoins will move from regulation through enforcement to clarity with proper bills being passed. This will open the doors to more traditional businesses interacting with crypto.
Yuval predicts that due to the T0 collateral mobility attributes of blockchains, RWA value locked will reach 25% of stablecoin supply in 2025. He describes how traditional financial institutions such as BlackRock and Goldman Sachs will use blockchains and move their assets onto these rails: "It's actually the underlying technology that opens the door for that efficiency, that reduction of settlement risk. And as a result of that, create new financial instruments that today just wouldn't be financially feasible."
Cuy predicts a large increase in stablecoin-linked cards and comments that many customers are already coming to Visa to connect wallets (both consumer and corporate) to spend their stablecoin balance via Visa cards. Linking a Visa card to stablecoin balances lets users off-ramp their assets with any merchant that accepts Visa cards today. Secondly, he predicts that there will be a rise in non-US-backed bank stablecoins; however, they will predominantly be used for payments instead of savings. "I think that non-dollar stablecoins will be more payments oriented. And so if you look at the supply versus the transaction volume, I would expect that the supply is going to be much lower relative to the volume that they do."
Listen to the whole episode for great conversations on how traditional assets will be bridged over to blockchain rails, the future of stablecoin regulation, and what the largest payments and financial services companies such as Visa and Digital Asset are seeing in the space today.
USDC: 2024 In Review
Peter Schroeder, Head of Marketing at Circle, shared a 2024 roundup of USDC. USDC supply grew ~80% in 2024, significantly outpacing Tether's ~50% growth, while the aggregate stablecoin market supply grew by 58%.
Looking at volumes, USDC recorded a yearly transfer volume of roughly $17.4T compared to USDT's $10T. That said, USDT's average daily trading volume for 2024 still dominates at roughly 7.5x that of USDC.
With MICA going into effect in Europe, USDT saw its largest single-week decline in supply since the FTX collapse in 2022. While Coinbase made headlines as the first major exchange to delist USDT for their European customers, the impact may be limited as exchanges still have a ~12-month grace period to delist non-compliant stablecoins, giving Tether more time to become compliant.