I was reading an article about stablecoins that has some amazing facts (at least amazing to me).
Stablecoins settled more than $11 trillion on the blockchain in 2022, dwarfing volumes processed by PayPal (ticker: PYPL) and nearing Visa’s (V) volume of $11.6 trillion, a team at macro hedge fund Brevan Howard wrote in a recent report. More than 25 million blockchain wallets hold more than $1 in a stablecoin, and 80% of these hold $100 or less, Peter Johnson and Sai Nimmagadda added, noting that a bank with 25 million accounts would be the fifth-largest in the U.S.
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$11 trillion!
Considering that the first stablecoin, $BITUSD, was created in 2014 by @dan, his Dad, and Charles Hoskinson. Here we are less than a decade later. Perhaps BitUSD didn't flourish. But the idea of stablecoins has grown to rival the settlement volume of Visa. Think about that.
Stablecoins are rivaling the volume of a giant corporation. In another ten years, we'll likely see the settlement volume outstrip all credit card companies combined. This happened without a sales force, without rolling out merchant terminals, and with very few resources. Yes, Circle and Paxos aren't doing this out of their love of humanity. Tether, I'm sure, is making bank too. But the point is that these are independent teams making a product that takes very little effort to get people to use.
25 million blockchain wallets with stablecoin
This is also an amazing statistic. To be fair, 25 million wallets out of 8 billion people in the world leaves some room for growth. But now think about this. With PayPal in the mix, they have just added more then 300 million accounts that can potentially use $PYUSD.
Yes, yes. I know. Not your keys, etc. . .
But don't lose sight of the big picture. PayPal is bringing maybe 275 million new users to the stablecoin market. They may only pay their buddy $5 for lunch here and there. But think about what else this means. You don't have to be a PayPal customer to get paid by a PayPal customer. If I got booted off of PayPal because of their tendency to just freeze accounts, I only need an ETH address to get paid in PYUSD.
Do you see what has happened? You may not be a PayPal customer. But you can still do business with PayPal customers without having a PayPal account. Check this out:
I can receive PYUSD on my Crypto.com account.
It didn't click until now
I've read a ton of articles about PayPal entering the stablecoin space. But I can't remember any that stood out so much as the statistics cited above. It didn't click why this was significant. I lacked context.
Scotland and Ireland have some banks that issue bank notes their customer can use for spending. For this privilege, they need to have Pounds in reserve to back their notes. People can bring in their bank notes and convert them to Pounds. What we are seeing here is the creation of digital bank notes.
It won't be too long before banks start issuing their own stablecoins. It doesn't help a bank to transact in stablecoins they did not issue as they don't actually possess the money. It's just a ledger entry. But if they control the stablecoin, then there's money deposited with them. There's advantages to having cash on deposit.
I gave it some thought. If a bank issues a stablecoin, it needs the equivalent value in reserves. This means that the reserves are cash in the bank, or treasury notes earning interest. With fractional reserves, you know that money doesn't sit around in the bank. With treasuries, that's just debt that the government has spent. That money is in three different places at the same time. It's in the stablecoin, it's "in reserve", and it's lent out to others.
In the future, banks will be onramps for stablecoins. If you have a crypto wallet, you don't really need a bank account. But you do need a way to convert cash into stablecoin. Banks benefit because they get to hold on to your cash while you're out spending your ledger entry. Chances are that once the stablecoin is in circulation, it will stay in circulation for ages.
Stellar, $XLM does something similar at the retail level. You can deposit dollars at your Moneygram counter and convert that to USDC on Stellar. At the other end, a recipient can turn the USDC to the local currency. Or, they can keep the USDC in their Stellar wallet.
Amazing times are ahead. We just can't see it in the way that it is difficult to visualize road construction as more than dirt, detours, and heavy machinery. We can't imagine what it will look like once the project is done. Stablecoins are still new. But they have come a long way in such a short time considering the $11 trillion in payments in 2022 with barely any payment rails built.