Crypto Valley Live (ID: cryptovalley)

Crypto Valley Live (ID: cryptovalley)

, Author: Lou Kerner, translation: Ziming, reproduced by Odaily with authorization.

According to the chart above, stablecoins recently had a market capitalization of over $10 billion, which means a 70% increase in just the past three months!

In our latest episode of "Stablecoin Deus", all three guests said that they believe that the stablecoin market can increase by 10 times in the next year, breaking through 100 billion US dollars.

The author believes that after one year, the stablecoin can be doubled by another 10 times, breaking through 1,000,000,000,000,000,000 US dollars (1 trillion US dollars). The reason is very simple, mainly in the following 5 points:

1. The USD market is huge and growing rapidly

Stablecoins today are largely just digitizing the dollar (similar to how Craig's List started digitizing classified ads 25 years ago). It turns out that things have more utility when they are digitized. And the digitization of the U.S. dollar represents a huge opportunity, as it remains a large, growing market that has not been digitized so far.

M1 is the most basic indicator for studying the U.S. dollar, which includes physical currency, demand deposits, traveler's checks, other checking deposits, and transferable withdrawal accounts. This metric has grown 3x (over $500 million) in the past 10 years, at a CAGR of 11%. M1 has grown by 25% (or $1 trillion) in the past 4 months. It took 216 years for M1 to surpass $1 trillion for the first time.

M2 is a broader indicator that includes all of M1, and other "near money" such as savings deposits, money market securities, mutual funds and other time deposits. These assets are less liquid than M1, but can also be quickly converted into cash. M2 currently stands at $17.8 trillion.

In the past 10 years, the compound annual growth rate of M2 has been 7.6%. If this trend continues, M2 will reach 25.6 trillion US dollars in 2025. From this point of view, 1 trillion US dollars will only account for all US dollars. Or less than 4% of the volume of assets close to the US dollar (both of which can create fully backed stablecoins). Interestingly, Craig's List also took over 4% of classified ads in its first five years.

Given these facts, is $1+ trillion a reasonable forecast for stablecoin market cap in 2025? Here are four other factors that give me confidence in my $1+ trillion forecast.

Among the major countries, the M2 circulating in the United States is less than 50%

China, Japan and the Eurozone alone have $22.3 billion in M2. So we only need to get less than 2% of M2 from these regions and the United States to make the market value of stablecoins reach $1 trillion.

3. Algorithm-driven stablecoins do not require any assets to back them

There are various algorithm-driven stablecoins currently in development.

Basis raised $133 million in April 2018 to develop an algorithm-driven stablecoin, but it ceased circulation after just eight months due to regulatory issues and returned unspent funds.

As regulatory issues are resolved, we expect to see algorithm-driven stablecoins becoming significant digital currencies in the market. Some stablecoins may be partially backed, and some may not be backed by assets at all. In either case, algorithmically backed stablecoins again reduce the percentage of M2 that needs to be locked, making it easier for stablecoins to reach $1 trillion in market cap.

4. The government and major companies are working on the research and development of digital currency, and the main obstacle to the rapid growth of stable currency is being resolved

China is already testing its central bank digital currency (CBDC), but it is not alone in this field. According to a January survey by the Bank for International Settlements, more than 80 countries are developing CBDCs.

Facebook's Libra recently switched its backing asset from a basket of currencies to a series of fiat-backed stablecoins. Libra will not be denominated in US dollars only, instead, it will be denominated in major currencies in the world.

Therefore, we can see the efforts made by the government and enterprises for digital currency research, and Libra will also become a market player that cannot be ignored in this field in the future.

5. Compared with traditional finance, stable currency has a 10-fold improvement, and will continue to increase its added value

Although transactions were the main factor for the growth of stablecoins before this, the growth of stablecoins in the future will be driven by stablecoins bringing better asset transfer experience (compared to bank transfers), and the following two factors will drive future stablecoins growth of.

1. Cost - Most stablecoins cost less than $1 to transfer

2. Settlement - Stablecoins being able to settle in minutes (versus days for the banking system) would be a huge advantage

Although some people think that the advantages of stablecoins will disappear with the introduction of CBDC, I think its biggest advantage will still exist-programmability.