Nov 28, 2023

Stablecoins to Keep an Eye on

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Stablecoins are digital assets issued on the blockchain that represent an equivalent value of a real-world asset, often a fiat currency like the U.S. dollar or Euro. In our previous blog, we talked about the different types of stable coins in detail. We also published another excerpt from our Research Report which presented the top 5 stablecoins by marketcap. However there are newer stablecoins, that are in the making that could potentially swallow a lot of market share from the existing leaders. In this article, we list some stablecoins to keep an eye on.

(PayPal Stablecoin) PYUSD

In August 2023, PayPal introduced PYUSD, a U.S. dollar-backed stablecoin on the Ethereum blockchain, aimed at enhancing virtual transactions, facilitating faster value transfers, and enabling direct payments to creators. Minted by Paxos and regulated under New York's stringent guidelines, PYUSD is set apart by its seamless integration within the vast PayPal and Venmo networks, its easy connectivity between fiat and stablecoin due to PayPal's existing bank relationships, and its adherence to strict regulatory standards. While the stablecoin has faced criticism from the crypto community, particularly regarding its structure and potential account freezing capabilities, PayPal believes it can carve out a niche, especially given eBay's significant user base and sales volume, which uses PayPal as its primary payment gateway.

CBDCs (Central Bank Digital Currencies)

CBDCs (Central Bank Digital Currencies) are rapidly gaining traction worldwide, with predictions from CITI Group indicating that as much as $5 trillion could be in circulation by 2030 in major economies, half of it associated with distributed ledger technology. Central banks from large countries have announced their plans for CBDCs, poised to introduce nearly 2 billion people to this digital currency. While CBDCs offer the allure of faster and cost-effective transactions akin to stablecoins, they are met with skepticism by blockchain purists who view them as government manipulation tools, potentially restricting users from purchasing certain assets. Reuters reports that about 130 countries, which constitute 98% of the global economy, are researching digital currency forms. Several countries have already adopted or are piloting CBDCs, including regions in the Caribbean, Nigeria, and China. Emerging economies like India and Brazil also have digital currency launches on the horizon, with the European Central Bank working towards a digital euro. Interestingly, Latin America and the Caribbean appear to be frontrunners in the CBDC race, as corroborated by an IMF survey.

Interest-bearing stablecoins

Interest-bearing stablecoins like flexUSD and Mountain USD differ from USDC and USDT in that they return part or all of the interest earned from their reserves to the coin holders. FlexUSD, introduced in November 2020 by CoinFLEX, utilized its crypto repo markets to generate yield for its holders, who received payouts every 8 hours. This stablecoin could also earn extra interest in DeFi protocols. Yet, by October 31st, 2023, CoinFLEX is ceasing its operations and pausing interest payments to its holders, putting its sustainability into scrutiny. Conversely, Mountain USD (USDM), launched in September 2023, boasts of being a regulated, permissionless yield-bearing stablecoin with reserves in short-term US Treasuries or similar assets. Managed by a seasoned RIA from Bermuda and stored with custodians like J.P. Morgan, USDM's generated yield is given back to its holders. However, due to regulatory uncertainty, it's not accessible to US citizens and some other jurisdictions. Notably, USDM's finances are kept distinct from the company's operational accounts.

Glo Dollar USD (Charitable Stablecoin)

The Glo Foundation has introduced the Glo Dollar, a unique US dollar-backed stablecoin issued by in the United States. Unlike traditional stablecoins that either retain the interest from their reserves or distribute it to their holders, Glo Dollar uses the earnings from its reserves to finance GiveDirectly's basic income initiatives, which are aimed at elevating individuals from extreme poverty. By choosing the Glo Dollar for transactions, users inherently contribute to charity without making direct donations. The model suggests that for every $20,000 in Glo Dollars, one person can be lifted from extreme poverty. To start funding these initiatives, the Glo Dollar must achieve a $2M market cap; as of 9/25/2023, its market cap was $1.4M, and it operates on Ethereum, Polygon, and Celo blockchains.

Non-USD Stablecoins

Although USD stablecoins currently dominate the fiat-linked stablecoin market with over 98.5% ($121.40 Billion) of the total market capitalization, non-USD stablecoins make up about 1.5% ($1.925 Billion) of the market. The top 13 stablecoins are all USD-linked, with Euro Tether (EURT) being the leading non-USD stablecoin at 14th position, followed by others like Stasis Euro and xSGD. While the USD comprises 59.02% of the world's Foreign Exchange Reserves according to the IMF, it has a much larger share in the decentralized finance (DeFi) world at 98.5%. As traditional finance and DeFi potentially converge in the future, the market share of non-USD stablecoins could rise closer to 40%.

Read more about stablecoins and their remittance use case in our latest research report Stablecoin Landscape and the Remittance Use Case co-authored by The Hedera Network, Myna, UnoCoin, Glo Dollar, Brale and Ethereum Enterprise Alliance.

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