By Greg Cipolaro, Global Research Director, NYDIG
Compiled by: WEEX Exchange
Reading summary:
The impact of Visa’s stablecoin strategic expansion on payments
Stablecoins have become one of the killer applications of blockchain, with transaction volume approaching Mastercard
The industry focuses on infrastructure and providing transaction supply, but increasing transaction demand is also necessary
Visa caused a stir last week when it announced it was partnering with merchant acquirers Worldpay and Nuvei to settle merchant payments using the USD Coin (USDC) stablecoin on the Solana chain. This exciting development builds on Visa’s ongoing efforts in the digital currency space, allowing them to use the USDC stablecoin to settle payments with issuer and acquirer partners, albeit currently in a pilot phase. Visa previously relied on USDC issued on the Ethereum network, but has now expanded to include USDC issued on Solana.
The size and variety of stablecoins
There is no doubt that stablecoins, digital assets that are closely related to the value of the U.S. dollar (USD), have become one of the most important applications of blockchain technology. The current total market value of stablecoins reaches a staggering $124.4 billion, most of which are off-chain reserve assets such as Tether (USDT) and USDC. Additionally, there is a small group of over-collateralized on-chain reserve stablecoins, such as Dai (DAI), and a small group of under-collateralized algorithmic stablecoins, such as Frax (FRAX). Despite its controversial history, Tether still dominates the stablecoin market, accounting for approximately 2/3 of the industry’s total market capitalization.
At first glance, a centrally issued alternative to the U.S. dollar may seem contrary to the ethos behind the creation of the first digital asset, Bitcoin, a fixed-supply asset created to eliminate dependence on financial intermediaries. Most stablecoins (forms of off-chain reserves) rely on a central issuer because they mimic the U.S. dollar, inheriting the same economic, social, and governance characteristics as the U.S. dollar.
Initially, many stablecoins were launched as a single asset on a single network (Omni/Bitcoin USDT, Ethereum USDC). Today, most “stablecoins” are collections of unique digital assets across multiple networks. For example, USDC has 13 , there are 15 types of USDT. (Editor's note: In fact, according to WEEX statistics, Tether has currently minted USDT on 18 blockchains or protocols, including: Bitcoin, Ethereum, OKT Chain, BNB Chain, Polygon, TRON, Cosmos Hub, Klaytn, Arbitrum One, OP Mainnet, Linea, Polygon zkEVM, zkSync Era, StarkNet, Ethereum PoW, Avalanche-C, Ethereum Fair, Ethereum Classic; and USDC has been minted on 19 chains or protocols, which is one more Ronin than USDT.)
Stablecoin trading volume catches up with Mastercard
Despite the criticism of centralization, it has not hindered the popularity of stablecoins. This clearly demonstrates the growing demand for “on-chain dollars”, whether as a reliable store of value, a convenient medium of exchange, or as a quote currency in the trading of various assets (such as BTCUSDT). In fact, stablecoins have become so popular that their total transaction volume has now surpassed Bitcoin and is even about to surpass the second largest credit card network, Mastercard (Editor's note: Mastercard transaction volume in 2022 will be $8.175 trillion, Stablecoin transaction volume is $7.928 trillion). We acknowledge that such a one-to-one comparison may not be appropriate, but it provides us with valuable insights.
It is worth noting that the transaction volume of the credit card network is mainly payments, while stablecoins and Bitcoin can be used for a range of financial applications including payments, but the specific proportion is difficult to determine.
Chart: Stablecoin transaction volume is close to Mastercard (unit: $1 billion)
Supply and demand for transactions should be considered equally
Taking a step back and looking at the bigger picture of technological advancements in the crypto industry, it’s clear that the focus is on expanding the availability of transactions for users. Various second-layer technologies, such as rollups, app chains, sharding and sidechains, as well as faster first-layer blockchains such as Solana and the Lightning Network, are pioneering innovations that make cryptocurrencies faster and more cost-effective benefit.
Visa's support for USDC on Solana is particularly noteworthy because, despite occasional blockchain outages, Solana was created to provide high-speed and low-cost transactions on a single chain. However, this raises a question: while the industry attaches great importance to transaction supply, should it also pay equal attention to transaction demand? For startups in this industry, a fruitful strategy may involve focusing on capabilities that are not adequately provided by existing technologies. The Bitcoin protocol inherently provides many features that users want because it is designed to eliminate intermediaries. This inherently makes building a long-lasting company in this industry a challenge.
Cryptocurrencies have the potential to follow in the footsteps of the internet, with faster speeds and widespread accessibility opening up new, previously unimaginable possibilities. Just as we could imagine watching TV over the Internet in the dial-up era, we could never imagine services like Uber, Twitch, or the widespread influence of social media. It’s these unexpected opportunities that make the future truly exciting.
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