top of page
Stationary photo

What does $9.4 trillion annual traction signal about the opportunities within tokenized cash?

Updated: May 15

I was recently invited to join a panel on tokenization at a Magic Circle law firm. One of the questions asked by the host was “ Was there a widely used tokenization use case?” 


The answer seemed so obvious to me, so I asked “Do you know what is the biggest and the most successful use case of tokenization so far?” 


After a while of silence, I replied myself, “It’s tokenized cash or stablecoins.”


I tried to give people a sense of its usage and traction but due to time constraints I was not able to dive into details. 


So here for the weekly newsletter audience, I want to take a deep dive into the numbers, context and, most importantly, the size of opportunities the current stablecoin usage trajectory signals. 


Here are the top line usage numbers: 



We will look at these data and more through 3 lenses:


  1. Demand growth and composition

  2. Use cases by numbers

  3. Center of activities


Let’s dig in.


Demand Growth & Composition

Stablecoin USDT was the first fiat-backed USD-pegged stablecoin introduced to the digital asset world back in 2015 by Tether. It was designed where someone who made a $1 USD deposit would receive a token representing that $1 on a blockchain. 


At the time, there was no stable store of value in the market given the price volatility of Bitcoin. USDT stepped in to fill the void and became the go-to medium of exchange on various trading venues. 


Below is a chart showing the evolution of USDT as well as other major fiat-backed stablecoins.


20s of history on USDT:


  • Launched in 2015

  • By 2017 Dec, the total USD deposited for USDT exceeded $1 billion for the first time

  • By 2018 Feb, it exceeded $2 billion

  • By 2020 Feb, it exceeded $4 billion

  • By 2021 Feb, it exceeded $26 billion

  • By 2022 Feb, it exceeded $76 billion

  • By 2023 Feb, it contacted to $67 billion

  • By 2024 Feb, it exceeded $96 billion

  • As of 2024 Apr 29th, USDT is the biggest stablecoin by far at $110 billion. 


That is, 6 years after it first crossed the $1 billion mark, the demand for USDT grew 110x. A deeper look into the composition of where USDT resides reveals a offshore/international bias. 


More than half of USDT is concentrated on Tron and BSC, chains favoured by emerging market users vs Ethereum and Arbitrum where English-speaking users tend to gather. Of course this is not to say that Ethereum doesn’t have EM users. However, due to its comparatively expensive fee, it is not an ideal venue for lower valued transactions, which EM users are more likely to execute than users in the US or EU.


The US regulated USDC from Circle Internet Financial is the second biggest fiat-backed USD-pegged stablecoin at $33.7 billion. Unlike USDT, which is issued and regulated offshore, USDC is regulated under the US state money transmitter frameworks. It differentiates itself from USDT by its more robust, trusted and transparent regulatory regime.


Below shows the 5 biggest chains where USDC resides.

More than 70% of USDC’s supply resides on Ethereum. Base and Solana make up another 15% of the total supply. Given Ethereum’s relatively high cost of transaction, Base’s status as a Coinbase L2 and Solana’s status as the go-to retail trading chain for English-speaking crypto Twitter audience, there is an unmistakable US and EU tilt when it comes to user profile of USDC.


Stablecoin Utilities

Since it solves store of value and medium of exchange issue for the digital asset world, the most logical place to gauge stablecoins’ utilities would be its usage in trading as well as payment transfers.


Spot Trading

In terms of spot trading volume, the number bottomed around $0.5 trillion a month in mid 2023 and averaged above $1 trillion per month in the last 6 months according to the latest data. 




Their total 10 trading pairs by volume are all stablecoin pairs. See the table below for the latest 24hr data compiled from Coingecko.

These stats suggest that a vast percentage of the spot trading volume is conducted using stablecions. If we take a conservative bear-market average of say $0.5 trillion in monthly spot trading volume, it still adds up to close to 4 trillion of stablecoin denominated trading a year.


Derivatives Trading

When it comes to derivatives trading volume, more than 99% of all derivatives trading is margined using USDT or USDC. If we take a conservative bear market average of $2 trillion monthly volume, the stablecoin usage in this vertical measures at least $2.4 trillion a year, assuming a 10% margin requirement. You can read more in my previous detailed analysis


Transfer Volume

When it comes to transfer volume, let’s start from the top. The chart below shows that we are almost back at all-time-high transfer volume for stablecoins. The last time we were doing close to $3 trillion in transfer volume, we were in a raging bull market when Bitcoin first broke through $62,000 in April 2021.

Fast forward 3 years, the total transfer volume for April 2024 was $2.8 trillion. Since 2023 Oct, the total monthly transaction volume has seen an explosive increase, from $620 billion to $2.8 trillion today. A 400%+ increase in 6 months.


Visa recently came out with a new dashboard stats that primarily filtered out any transactions that were potentially originated by bots and focused on human initiated transactions aka payment transfers. 


Even using this filtered data set, the 30 days transaction volume was $265 billion. If annualized, this would add another $3 trillion to stablecoin’s annual usage. This puts it above global remittance flow, PayPal’s transaction volume and below that of Visa and Mastercard networks’ transaction volume. 


Center of Activities

As important as the total transaction volume, the network on which stablecoin transactions take place has seen a dramatic shift from Ethereum and Tron to Solana. Back in Oct 2023, Ethereum and Tron made up 84% of the $620 billion volume. In April 2024, they combined for 44% of $2.8 trillion. In that same time frame, Solana’s share of stablecoin transaction volume rose from 6% to 50%. 


What makes Solana such a center of activities when it comes to stablecoin usage? 

Well according to Visa, who chose Solana out of all blockchains to run its stablecoin pilot programme, Solana’s “high transaction throughput and scalability at low cost” makes it a great network for payments. 


A deeper look reveals the likely user profiles of transactions.Of the 130 million transactions that took place on Solana, almost 50% of the transactions are less than $100 in value. Given the lower value, most likely these are payment transactions or investment/trading transactions from EM users.


An interesting thing to note is that while Ethereum is doing 8 million in transactions, it is doing $800 billion in transaction value. This translates into an average transaction value around $100,000. Contrast this with Solana’s 132 million transactions on $1.4 trillion volume, this means the average transaction value on Solana is around $10,000. This means the average stablecoin transaction value of Ethereum is 10x higher than that of Solana’s. 


In terms of users, notice there are no Ethereum ecosystem blockchain in the top 3? Whereas emerging market focused Tron and BSC chains boast far more users than the rest of the ecosystem combined. This corroborates the evidence shown in USDT’s supply breakdown by blockchain that it dominates stablecoin usage in emerging markets even though the value of these transactions is much lower than that of Ethereum’s.


Conclusion

What opportunities do these numbers and context imply?


  1. Payment service - particularly on Solana and BSC

There are just over $3 billion worth of stablecoins on Solana. This is generating $1.4 trillion of transfer a month. The velocity of stablecoin on Solana is unparalleled. Since payment service’s business model is taking a % on the total volume, Solana’s high velocity of money as well as its cheap and fast transactions are very conducive for payment services. A similar rationale also applies to BSC.


2. Market making service - particularly on Solana and BSC

Of course, cheap and fast transactions are also great for running bots to take advantage of pricing discrepancies across multiple venues. A nimble market liquidity provider can take advantage of spreads on many more trades, particularly trades of lower value, on these networks than what is available in other networks.


3. Yieldcoins - tokenized cash on every blockchain network

If stablecoins provide a solution for payment and store of value, then very logically, a more capital efficient way to hold and use cash or cash equivalent would bring extra revenue or savings for organisations as well as individuals. You can find out more about this topic here.


Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.


Comments


bottom of page