Stablecoins Are Experiencing Exponential Growth, with Bitwise Reporting Their 2024 Transaction Volume Surpassed Visa's

Stablecoins are experiencing exponential growth, rapidly becoming one of the most significant financial innovations of the last two decades, some experts have asserted.

Stablecoins are rapidly increasing in usage, with transaction volumes now outperforming those of Visa, crypto analytics firm Bitwise reported on Thursday.

The firm’s report, titled “Interoperability and Innovation in Web3,” showed that transaction volumes on stablecoins reached $14 trillion last year. For context, Bitwise previously reported that transaction volumes on Visa were around $1.5 trillion in 2023, while those of major stablecoins amounted to approximately $7 trillion.

In 2020, the volume of transactions on Visa were almost 10 times greater than those of stablecoins. It took just under five years for stablecoins to close this gap and for transaction volumes on the U.S. multinational payment card services corporation’s network to begin to outpace those of Visa.

This time period also saw the launch of several new stablecoins, along with the development of new use cases for these digital assets. Specifically, Bitwise noted that stablecoins are used for a diverse range of purposes, including cross-border payments, institutional investing and decentralized finance (DeFi).

Moreover, the analysis firm highlighted the role of stablecoins in streamlining and rendering financial services more efficient.

“Stablecoins offer several advantages for payments and other financial services. They can be transferred nearly instantaneously around the world at very low cost. In contrast, SWIFT [Society for Worldwide Interbank Financial Telecommunications] payments can take several days and are relatively expensive. They also offer a unit of account and medium of exchange in DeFi, where a broad range of financial services are being developed,” the report read in part.

Discussing the primary drivers of stablecoin adoption, DWF Labs Managing Partner Andrei Grachev noted that despite the speed of growth, the widespread use of stablecoins is presenting some key systemic risks that need to be mitigated.

Building on the drivers of adoption, Grachev listed some emerging vulnerabilities and an interesting perspective on the 'downside' of stablecoins. According to the managing partner, this risk is especially apparent with algorithmic stablecoins.

“Imagine what happens if users try to exit en masse because they fear a depeg. This could destabilize issuers and trigger broader market volatility, especially with algorithmic or undercollateralized stablecoins,” Grachev told Bitcoin.com News.

Another critical risk is highlighted by the DWF Labs managing partner to be insufficient or opaque reserve management. He added that this could erode trust and facilitate contagion if a major issuer fails, which is further exacerbated by offshore operations that lack proper oversight.

To overcome such risks, Grachev highlighted a multi-pronged solution that prioritises real-time, on-chain proof-of-reserves, ideally short-duration U.S. Treasuries or central bank reserves. According to the managing partner, robust regulation is equally crucial to ensure strict fund segregation, transparent governance and smart contract audits.

Finally, protocols should incorporate risk management features like automated circuit breakers and redemption throttling to manage outflows during stressed periods, preventing rapid destabilization, Grachev concluded.

The post Experts: Stablecoin Transaction Volume Surpasses Visa’s in 2024, Posing Systemic Risks