Standard Chartered’s Analysis on Stablecoin Velocity
The focus on stablecoin velocity is gaining traction, with Standard Chartered highlighting its potential impact on market demand. As the velocity of stablecoins increases, the need for new token supply might diminish, despite rising transaction volumes.
Understanding Stablecoin Velocity
Stablecoin velocity refers to how frequently these digital assets are used relative to their total supply. A higher velocity indicates more frequent usage, allowing for increased transaction volumes without a corresponding rise in supply. According to Geoff Kendrick, head of crypto research at Standard Chartered, if velocity remains constant, higher transactions will necessitate more stablecoins. However, an increase in velocity negates this requirement.
The Shift in Market Dynamics
The report reveals a significant doubling of stablecoin velocity over the past two years, driven by new payment use cases and enhanced traditional finance (TradFi) activities. This shift challenges earlier assumptions that stablecoin velocity would remain stable as the market expanded.
Kendrick notes that the rising velocity seems to reflect a transition towards new use cases, particularly in high-velocity TradFi and AI transactions. Interestingly, there has been no notable increase in velocity for existing use cases like emerging market savings.
USDC vs. USDT: A Tale of Two Stablecoins
The surge in stablecoin velocity is primarily attributed to Circle’s USDC, which has seen turnover reach at least six times a month on average. This increase is evident across all chains, especially on Solana and Base, indicating a shift towards TradFi use and early AI payment integration. In contrast, Tether’s USDT maintains a lower velocity, aligning with its role in emerging market savings.
Kendrick explains that these differences highlight the distinct strengths of the two leading stablecoins: USDC for TradFi replacement and USDT for EM savings.
Despite these developments, Standard Chartered holds firm on its forecast, projecting the stablecoin market to reach $2 trillion by 2028.
