Stablecoins Are Becoming Systemically Important, Bernstein Says

Stablecoins are becoming increasingly important to the global financial system, the report said.

Bernstein noted that stablecoins are the 18th-largest holders of U.S. government debt.

Stablecoin circulation is back to an all-time high of $170 billion, the broker said.

Stablecoins are becoming more important to the global financial system, and constitute the 18th-largest holders of U.S. Treasuries, broker Bernstein said in a research report on Thursday.

A stablecoin is a type of cryptocurrency designed to hold a steady value and is usually pegged to the U.S. dollar, though some other currencies and assets such as gold are also used.

After a dip in supply in 2023, stablecoin circulation is now back to an all-time high of $170 billion, the report said, and monthly payments volume on-chain has tripled in the last 12 months to $1.4 trillion in July.

“Stablecoins provide USD savings access to international users, propagating digital dollars beyond the U.S.,” analysts led by Gautam Chhugani wrote.

These cryptocurrencies are seeing increased integration with payments and fintech companies, such as PayPal (PYPL), MercadoLibre (MELI) and Grab (GRAB), the report noted.

Stablecoins are also increasingly being used for cross-border payments. “USD stablecoins on crypto rails are now the cheapest cross-border payments rails,” Bernstein said, adding that you can transfer $1,000 on layer 2s for as little as 1 cent.

A layer-1 blockchain is the base layer, or the underlying infrastructure of a blockchain. Layer 2s are separate blockchains, built on layer 1s, that improve scaling and speed.

Stablecoin holders outside the U.S. use these cryptos as a store of value versus their local currency, Bernstein said, and younger people use them more, with 20% of 18-24 year olds in emerging markets holding 25%-50% of their portfolios in this type of digital asset.

Edited by Sheldon Reback.