The stablecoin market is poised for a massive surge, with Standard Chartered predicting it could reach $2 trillion by 2028, driven in part by the passage of the Genius Act and its potential to legitimize the industry.
Stablecoin Market Growth and Implications
The stablecoin market is expected to experience significant growth, with Standard Chartered estimating it could reach $2 trillion by the end of 2028. This prediction is based on the passage of the Genius Act in the U.S., which is expected to legitimize the stablecoin industry.
The stablecoin market has grown significantly since its inception, with over $100 billion in total market capitalization.
Stablecoins are cryptocurrencies pegged to the value of a fiat currency or a commodity, designed to reduce price volatility.
Major players like Tether (USDT) and Circle's USDC dominate the market, followed by smaller issuers such as Binance's BUSD and Gemini Dollar.
The stablecoin market is expected to continue growing, driven by increasing adoption in decentralized finance (DeFi) applications and institutional investment.
The Impact of the Genius Act
The proposed legislation has the potential to trigger an almost 10-fold increase in stablecoin supply, according to Standard Chartered analysts. ‘This would result in a substantial jump from the current $230 billion stablecoin market size.’ The bank estimates that this increase would require the additional buying of $1.6 trillion of Treasury bills over the next four years.
A stablecoin's supply is typically capped and designed to mimic a fiat currency.
The total supply of a stablecoin is usually determined by its initial circulation and subsequent minting or burning.
Most stablecoins have a fixed supply, which helps maintain price stability.
For instance, the supply of USDT (Tether) is pegged to the USD ('1 USDT is equivalent to 1 USD'), ensuring that 1 USDT is equivalent to 1 USD.
The total supply of stablecoins in circulation can be influenced by factors such as market demand and regulatory environments.
Implications for U.S. Treasury and Dollar Hegemony
An increase in stablecoin supply has significant implications for U.S. Treasury buying and dollar hegemony. According to Standard Chartered, increased demand for dollar-denominated stablecoin reserves would result in additional demand for U.S. dollars, which should support dollar hegemony.
Dollar hegemony refers to the dominant position of the United States dollar in international trade and finance.
It is characterized by the widespread use of the 'US dollar' as a reserve currency, medium of exchange, and unit of account.
The dollar's dominance is due to historical factors, including the Bretton Woods Agreement, which established the dollar as a global reserve currency after World War II.
Today, over 60% of foreign exchange reserves are held in dollars, and it is widely used for international transactions.
Industry Shifts and Reserve Models
The bank expects the industry to move towards a model used by USDC issuer ‘Circle, which holds 88% of its reserves in Treasury bills with an average duration of 12 days.’ Tether, the largest stablecoin issuer, currently holds 66% of its USDT reserves in Treasury bills.
Conclusion
The passage of the Genius Act and subsequent growth of the stablecoin market have significant implications for U.S. Treasury buying and dollar hegemony. As the industry continues to evolve, it is essential to monitor these developments and their potential impact on global financial markets.
