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Respite from Soaring Inflation: Brevan Howard Digital's Stablecoin Solutions

Sep 1, 2023 at 01:42 pm

The utilization of stablecoins has displayed a fascinating trend, showcasing a limited correlation with cryptocurrency exchange volumes. This observation implies that a significant portion of stablecoin transactions serves non-speculative purposes, as highlighted in the recent report.

According to alternative asset manager Brevan Howard Digital, the stablecoin market, which includes cryptocurrencies like tether (USDT) and USD Coin (USDC), is poised for substantial growth. The report predicts that the supply of stablecoins could reach trillions of dollars, with transaction values in the hundreds of trillions of dollars in the coming years. This expansion is driven by the increasing global accessibility of the U.S. currency through these digital assets.

Peter Johnson, co-head of venture investments, and analyst Sai Nimmagadda anticipate that stablecoins will play a crucial role in providing financial services to the global unbanked and underbanked populations. Additionally, stablecoins offer a refuge from high-inflation currencies and have the potential to foster innovation within the emerging ecosystem of global open-network financial transactions.

The report also underscores the significance of payments giant Paypal's recent foray into stablecoins with PayPal USD (PYUSD). This strategic move underscores the immense potential of stablecoins and their potential to disrupt the global financial services landscape. A stablecoin is a type of cryptocurrency whose value is pegged to another asset, typically the U.S. dollar.

In 2022, stablecoins facilitated over $11 trillion in on-chain settlements, surpassing the payment volume of Paypal ($1.4 trillion), coming close to Visa's payment volume ($11.6 trillion), and accounting for 14% of the volume settled by ACH transfers and over 1% of the volume settled by Fedwire transactions. This rapid growth illustrates how a new global financial infrastructure can rival some of the world's largest and most established payment systems in just a few years.

Notably, more than 25 million blockchain addresses hold over $1 in stablecoins, a figure that holds significance when compared to traditional banking. In the context of traditional finance, a U.S. bank with 25 million accounts would rank as the fifth-largest by the number of accounts. This widespread adoption of stablecoins, even in smaller denominations, signifies their potential to serve customers who are underserved by traditional financial institutions.

Furthermore, stablecoins have demonstrated resilience during recent cryptocurrency market downturns. While the total market capitalization of cryptocurrencies experienced a 57% decline from its peak, stablecoins only saw a 24% drop, highlighting their stability and utility in turbulent market conditions.

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