Stablecoin Usage Scrutinized, Majority of Transactions Not Organic

A recent Visa study questions the widespread use of stablecoins. By filtering out transactions by bots and large-scale traders, Visa found that only 10% of stablecoin transactions in April 2023 were initiated by genuine users, suggesting that the sector is still in its early stages of development as a payment method and its market cap may be inflated.

Stability in Question: Stablecoins' Supposed Usage Under Scrutiny

The stablecoin realm has been mired in controversy, but a recent study casts doubt on the extent to which these assets are genuinely employed as asserted.

According to a report, a novel metric devised by Visa, the American multinational payment behemoth, indicates that over 90% of stablecoin transactions are not executed by bona fide users, implying that the widespread adoption of these cryptocurrencies as a means of payment remains an illusion.

Organic Transactions a Mere 10%

Visa, in collaboration with Allium Labs, has developed a dashboard to filter out transactions initiated by bots and large-scale traders, focusing solely on those initiated by real individuals. Out of a total of $2.2 trillion in transactions during April, only $149 billion were classified as "organic payment activity," according to Visa.

This essentially signifies that less than 10% of the transaction volumes involving stablecoins actually originate from genuine users or are considered organic. The dashboard explicitly states:

"This adjusted metric aims to remove potential distortions that can arise from inorganic activity and other artificial inflationary practices."

The dashboard utilizes two crucial filters:

• Single Directional Volume Filter: This filter only considers the largest stablecoin amount transferred within a single transaction, eliminating redundant internal transactions in intricate smart contract interactions.
• Inorganic User Filter: This filter excludes transactions sent by accounts that have initiated less than 1,000 stablecoin transactions and have transferred less than $10 million in volume over the past 30 days. Transactions emanating from accounts surpassing these thresholds are disregarded to eliminate various bot activities as well as automatic transactions from large entities such as centralized exchanges.

Stablecoin Market: Still in Its Infancy?

Pranav Sood, Executive General Manager for EMEA at Airwallex, opined that the data suggests that stablecoins are still in the early stages of their development as a payment method. While acknowledging the long-term potential of the assets, the executive emphasized the necessity of prioritizing the improvement of existing payment systems in the short and medium term.

Prominent blockchain intelligence firm Glassnode had previously estimated that the $3 trillion market circulation during the height of the 2021 bull market was actually closer to $875 billion.

With stablecoins, transactions can be double-counted based on the platform utilized. For instance, converting $100 of Circle's USDC to PayPal's PYUSD on Uniswap would result in $200 of recorded stablecoin volume. Visa itself, having processed over $12 trillion worth of transactions last year, could face losses if stablecoins gain widespread acceptance.

Accordingly, experts anticipate that the aggregate value of all stablecoins in circulation could reach $2.8 trillion by 2028, representing an almost 18-fold increase from their current circulation. Many in the crypto industry contend that stablecoins, due to their instantaneous and low-cost transactions, are ideally suited to disrupt the payments sector.

PayPal introduced its PYUSD stablecoin last year to facilitate instant and lower-cost transfers within its payment infrastructure. Stripe announced on April 25 that it would allow merchants on its platform to accept stablecoins for online transactions.