Global Stablecoin Adoption - Crypto's Killer Use Case?
Last week, a paper titled ‘Stablecoins: The Emerging Market Story’ was published in collaboration with Visa and several crypto firms. The paper's main focus was to survey individuals from five key emerging market countries (Brazil, India, Indonesia, Nigeria, and Turkey) to gain insights into stablecoin usage, both for crypto-related activities (like trading) and non-crypto purposes. The survey highlighted the different ways stablecoins have been used for non-speculative use cases:
47% of users utilize stablecoins to save in dollars.
43% use stablecoins for currency conversion.
39% use them for yield generation through decentralized finance (DeFi).
69% of respondents have used stablecoins for currency substitution.
39% use stablecoins for cross-border payments and purchasing goods/services.
The most popular stablecoin was Tether’s USDT, and Ethereum was the most used blockchain despite its high fees. However, Tron, Solana, and Binance Smart Chain were favored for high-frequency and smaller retail transactions. Using on-chain data, they found that overall stablecoin volumes have, on average, grown 225% each year since 2019.
A common pushback heard from critics when crypto advocates champion stablecoins as a key use case is that they are only used to facilitate speculative trading. This survey demonstrates that individuals and businesses use stablecoins to save on cross-border payments and remittances, help navigate untrustworthy or inefficient banking systems, and hedge against local currency inflation. These aren't trivial use cases but serious pain points experienced by billions of people. Over 85% of the world's population lives in a country whose currency does not benefit from having reserve currency status, leaving the USD in high demand. The World Bank reports that the cost of sending a $200 remittance to a low or middle-income country averaged 6.4% in the second quarter of 2022.
Crypto’s biggest criticism has always been, ‘But what are the use cases?’ This paper shows what many have been saying for some time now: stablecoin adoption in emerging markets is happening. And these users are actually leveraging permissionless and non-custodial defi applications for something other than meme-coin gambling.
Chainalysis recently released a blog teasing their upcoming annual Global Adoption Index. This report further proves that emerging markets continue to see high rates of adoption, with India, Nigeria, and Indonesia leading the list this year. Lower-income countries saw continued growth despite a pullback in high-income regions since early 2023.
The legacy financial system has never had an incentive to innovate and offer low-cost global payments. Meanwhile, fintech startups have been gatekept by the financial sector, which has enjoyed a cozy revolving door relationship with regulators for decades. Accessible and programmable payment rails have long been the touted innovation of crypto. Although it has taken some time, real adoption is beginning to emerge.
50 Bps Cut Helps Lift Crypto And Risk Assets, Now What?
It has been an important week for risk assets. The much anticipated September FOMC meeting concluded yesterday, resulting in a somewhat unexpected 50 bp rate cut. This cut and Chairman Jerome Powell's relatively dovish press conference helped spark an impressive rally for risk assets. While there was some volatility immediately following the decision and press conference, a broad-based rally, initially led by Gold, took hold several hours later. As of this writing, the all-important Nasdaq 100 tech index is testing a significant level of resistance around 20,000. A decisive break higher could invalidate a lower high and potentially maintain a trending market structure the index has been in since bottoming in January 2023.
Figure 1. The NASDAQ is hitting up against a key level.
While we cannot glean too much information from this relatively short-term move, the initial reaction to Jerome Powell’s decision is encouraging for investors. There was some concern that a 50 bps rate cut could signal that the US and global economy is heading for a downturn, which may not be ideal for risk assets. While this is still a risk, the initial jump higher has help assuage the fears that the Fed’s first rate hike could, counter-intuitively, cause a downturn in stocks.
Figure 2. Bitcoin has risen sharply following the Fed’s 50 bps rate hike yesterday.
Crypto assets have also shared in the recent rally, with Bitcoin rising above $63K, a gain of approximately 7.5% since yesterday. One of the strongest gainers, which has been notably strong since the mini-crash we saw in August (which many attributed to the unwinding of a JPY carry trade), has been the L1 SUI. SUI rose 30% since yesterday’s FOMC and is up approximately 150% since the lows it put in on August 5th. Investors would be wise to watch this altcoin for the remainder of 2024.
Figure 3. SUI has been a top performer over the past several weeks.
One major event for traders to keep in mind is the BOJ rate decision, which is expected to occur tomorrow (Friday September 20th). The BOJ is expected to keep rates unchanged, as the central bank is keen to steady its FX pair and calm nerves after the unexpected rate hike in late July triggered a sharp, albeit brief, global market sell-off.
Other Crypto Developments
Crypto Advocates Push for Policy Shift in Democratic Party
A group of crypto advocates, including Anthony Scaramucci, are working with Vice President Kamala Harris’s campaign to distance the Democratic Party from SEC Chair Gary Gensler and Senator Elizabeth Warren, hoping to shape more favorable crypto policies. Other non-crypto donors have also been increasingly pushing Kamala Harris’ team to replace the unpopular Gensler.
Lawmakers and Crypto Firms Clash Over SEC's Crypto Regulation
At a U.S. House hearing, tensions flared as lawmakers and crypto industry leaders criticized the SEC’s regulatory approach. Some firms claimed it was impossible to comply despite SEC Chair Gary Gensler’s assertions. Robinhood’s legal officer, Dan Gallagher, highlighted the firm's year-long efforts to register, while others accused the SEC of unfair enforcement. Some Democrats defended the SEC's rules, while others, like Rep. Wiley Nickel, argued that the SEC's stance harms innovation and American competitiveness.
Lawmakers Optimistic About Crypto Legislation Post-Election
U.S. lawmakers, including House Financial Services Chair Patrick McHenry and Sen. Cynthia Lummis, expressed optimism that crypto-related bills could gain momentum during the post-election lame-duck session. McHenry's crypto market structure bill, FIT 21, may be attached to end-of-year legislation, while Lummis remains hopeful about pushing through other crypto regulations. Several bills, including those addressing stablecoins and NFTs, are being discussed, signalling bipartisan support for clearer crypto regulations.
CFTC Argues Election Prediction Markets Are Vulnerable to Manipulation in Kalshi Case Appeal
The CFTC filed an appeal to stop Kalshi from offering election prediction contracts, arguing that such markets are prone to manipulation and pose a threat to election integrity. While a district judge ruled in favor of Kalshi, allowing the contracts, the CFTC continues to fight the decision, comparing unregulated election trading to illegal activity and emphasizing the risk of manipulation, citing examples like Polymarket.
That's Some Good Content!
Recommended articles, podcasts, and other content from this week:
Compound research paper: DePIN's Imperfect Present & Promising Future: A Deep Dive
0xResearch podcast - Can Drift Rival Binance? | Analyst Round Table
The Breakdown podcast - SEC Backs Off But Gaslights on "Crypto Asset Securities" Terminology
Lightspeed podcast - The State of Solana DeFi | MacBrennan, MarginFi
Meme Of The Week