Pantera: The Trillion-Dollar Stablecoin Market — The Stack and Future Opportunities

Author: Ryan Barney and Mason Nystrom, Partners at Pantera Capital; Translated by: 0xjs@黄金财经

Stablecoins are a trillion-dollar opportunity.

That’s not hyperbole.

While cryptocurrencies are often thought of for volatility, tokens, and liquidity, there’s another side of cryptocurrencies, stablecoins, that more quietly carry the banner of cryptocurrency adoption. For starters, these crypto dollars are pegged 1:1 to the underlying fiat currency, using algorithms (less popular) or reserves (more popular) to maintain the peg.

Stablecoins account for more than 50% of blockchain transactions today, up from 3% in 2020. Stablecoins are the claim to be the killer app for cryptocurrencies, and unlike many cryptocurrencies, they are inherently non-speculative.

In a short period of time, stablecoins have demonstrated their ability to become one of the transformative innovations in the cryptocurrency space. 2024 is the breakout moment for stablecoins, with adjusted trading volume exceeding approximately $5 trillion and transactions exceeding $1 billion across nearly 200 million accounts.

Stablecoins have achieved impressive growth in the last crypto bull run, but this time around, their application has expanded beyond the DeFi ecosystem. Over the past few years, stablecoins have demonstrated their core value proposition - seamless cross-border payments, initially enabled by access to U.S. dollars. Accordingly, the fastest growing areas for stablecoins are emerging markets, where demand for U.S. dollars is high.

Stablecoins offer a 10x value proposition to traditional payment methods for B2C payments (e.g. remittances) as well as B2B cross-border transactions.

Cryptocurrencies have long been expected to provide a solution to the trillion-dollar cross-border payments market. By 2024, cross-border B2B payments through traditional payment channels will reach approximately $40 trillion (excluding wholesale B2B payments) (Juniper Research). In the consumer payments market, global remittances account for hundreds of billions of dollars per year. Now, stablecoins provide the means to enable global cross-border remittance payments through crypto channels.

As the adoption of stablecoins in the B2C and B2B payment sectors accelerates, the supply and transaction volume of on-chain stablecoins have reached all-time highs.

Stablecoin trio: better. faster. cheaper.

There is an old saying in the business world: Few products can provide better, faster, and cheaper things at the same time. Usually, a product can meet two of these conditions at the same time, but it is impossible to meet all three conditions at the same time. Stablecoins provide a better, faster, and cheaper way to transfer funds globally.

For businesses and consumers, stablecoins offer a value proposition that is 10 times higher than traditional dollars.

Better: Stablecoins are a more accessible product that is available 24 hours a day, 365 days a year. They can be easily transferred across borders globally and are programmable, which makes stablecoins a superior product to fiat currencies.

Faster: Stablecoins are undoubtedly faster and can be settled instantly, rather than taking T-minus 2 or T-minus 1 day to settle.

Image from BVNK report

Cheaper: Stablecoins cost less to issue, transfer, and maintain than fiat currencies. In 2023, Stripe facilitated more than $1 trillion in payment volume, with a fee structure starting at 2.9%, plus an additional 30 cents for domestic card transactions. On high-throughput blockchains such as Solana or Ethereum L2s such as Base, the average stablecoin payment costs less than a cent.

The Emerging Stablecoin Stack

While the stablecoin stack continues to evolve, there are a few emerging layers that are emerging:

• Merchant Layer – Applications and interfaces that initiate retail or commercial transactions

• Stablecoin Orchestration – Providers that provide last mile on/off rails, virtual accounts, cross-border stablecoin transfers, or stablecoin-to-fiat currency conversions

• FX and Liquidity – Providers that provide cross-border stablecoin conversions to other USD-pegged stablecoins, fiat currencies, or regional stablecoins.

• Stablecoin issuance – Companies or protocols that offer white label stablecoins or first party stablecoins with differentiated features

Similar to how cryptocurrency exchanges have sprung up in various corners of the world to cater to local players, we expect a variety of cryptocurrency cross-border applications and processors to emerge as they cater to specific stablecoin markets.

Just like traditional finance and payments, building moats in each part of the stack will be important to expand business opportunities beyond the initial value proposition. We’ve considered which moats are defensible and can be expanded over time at each layer:

• Merchant Layer — Moats are built by owning stablecoin flows to users or businesses. This provides the opportunity to upsell other services, sell user flows, and own the end-to-end customer experience. The Robinhood of stablecoins will emerge following a similar strategy.

• Stablecoin Integration — Licenses! Whoever gets the licenses will get the most reliable, global coverage at the cheapest price. Will it be developer-friendly? Look at the Stripe x Bridge acquisition to understand where and how the moats here are formed.

• FX and Liquidity — Liquidity begets liquidity, and flow begets value accumulation. Any player that can source proprietary liquidity and price it efficiently will outperform new entrants without it. This is why a few large exchanges today serve the majority of stablecoin flows on certain major corridors. We also believe that the transition from OTC FX to exchange-based FX to on-chain FX will facilitate faster payments and transactions at this layer.

• Stablecoin Issuance - Over time, issuance will become commoditized and will inevitably lead to the launch of dozens of large branded stablecoins (e.g. PYUSD). As the other layers of the stack grow (i.e. merchants, business processes, and liquidity), we expect these layers to have the ability to launch their own stablecoins, whether to capture yield, build their own branded stablecoins, or build proprietary stablecoin liquidity and flow.

The layers of the stack will merge over time as they are increasingly tied together. The merchant layer is best suited to aggregate the other layers of the stack, thereby providing more value to end users, increasing profits, and creating more revenue streams. They will have the power to choose which FX transactions they conduct, which on- and off-ramps they own or rent, and which issuers they use.

In addition, we expect stablecoin issuance to become increasingly common for large fintechs and e-commerce providers that facilitate large amounts of money movement. The next generation of neo-banks and fintechs will be defined by stablecoins. Just this month, we’ve heard that large credit card networks like Visa, banks like JPM, and asset managers like Blackrock are interested in exploring stablecoin projects of their own.

Looking Ahead: The Next Decade of Digital Dollars

The tokenization of the dollar is still in its infancy.

Even as stablecoin MAUs reach all-time highs, we believe adoption will continue as hundreds of millions of people interact with stablecoins over the next decade.

Importantly, stablecoin users continue to grow even as exchange volumes fluctuate. From bull to bear markets, stablecoins have taken hold and expanded their digital influence.

As cryptocurrencies rebuild the financial system from the ground up, so too have stablecoins, woven into traditional financial payment networks.

While large players like Stripe, Visa, and Paypal have entered the stablecoin market, we see a ton of opportunity for new protocols and companies focused on stablecoins.

Here are some ideas that excite us:

• Stablecoin Neobanks - The advent of mobile devices has enabled a tremendous amount of value to be gained from Neobanks. Crypto Neobanks will not only provide best-in-class payment rails, but will also support the next generation of consumer financial applications that aggregate payments, trading, yield, lending, and other core financial services.

• On-chain FX - While most stablecoins are currently pegged to the USD, we expect more currencies to come on-chain, driving the development of an on-chain FX layer. More immediately, with a large number of USD-pegged yield stablecoins offering different yields and value propositions, we expect these initial USD-pegged stablecoins to require an FX layer.

• Telegram Payment Rails - Telegram offers a native payment wallet, but we also see a unique opportunity to build a new payment layer on top of Telegram using new interfaces like the TG Applet.

• Remittances on Crypto Rails — Remitly, Wise, Intermex, Ria, MoneyGram, Western Union. All remittance companies, each with hundreds of millions to billions of dollars in annual revenue. Remittance companies charge flat fees that make sense for low amounts (e.g. $6 on a $60 transaction) or high fees (30-100bps per transaction). Stablecoins lower the cost of sending money globally and make the process seamless. Money. “Remittance margins are the stablecoin opportunity.” - Jeff “Stables” Besos

• Global Venmo — Build P2P rails to bring Venmo-like functionality to a global scale. Remittances are typically a one-way flow, and this will serve the social commerce use case in a more two-way flow.

• Stablecoins Support Fund Management and Operations - As the fintech space expands from PayPal payments, it has created multi-billion dollar opportunities in areas such as wealth management, personal finance, payroll, corporate spending and expense management, neo-banking, financial accounting and reporting, lending/mortgages, etc. Similarly, stablecoins provide an opportunity to rebuild many of these cumbersome processes with better rails supported by stablecoins. In the short term, fund management and operations deal with complex operations, which makes the value proposition of stablecoins disruptive.

Conclusion

Stablecoins represent a trillion dollar business opportunity. We want to support founders and visionaries who can see the future prospects of stablecoins and are not subject to the financial system.