Despite the financial uncertainty posed by 2020, the tumultuous year has represented something of a prosperous one for the stablecoin market. Since the beginning of the year, the cryptocurrencies that have their values pegged to existing assets like gold or the US Dollar have seen a heavy flow of funding as more traders look to buy into stable assets as a way of keeping their money from depreciating.
While stablecoins have become a useful store of finance that promises stronger protection against the disruption threatened by COVID-19 and subsequent recessions, there’s reasonable evidence to suggest that the currencies are actively evolving beyond their role as a trading asset and are increasingly being looked upon as a means of transferring value.
Over the coming years, we’re likely to see a range of central banks and large corporations start to tap into the stablecoin landscape, with global behemoths like Facebook already signalling their intent with the shelved Libra Project. With large scale investment into stablecoins looking like an inevitability, what will this mean for the crypto world’s smaller, un-tethered assets, like Ripple?
The Rise and Rise of Stablecoins
As Bitcoin made its famous rally towards the end of 2017, more and more cryptocurrency exchanges started to make the switch from fiat currency-to-Bitcoin trading pairs to Tether-to-Bitcoin – thus enabling crypto-only exchanges to build on market share gains.
The late 2017 boom opened the door for more stablecoins to enter the market, with countless projects surfacing in a bid to emulate Tether’s purpose and success.
As the arrival of COVID-19 caused widespread financial uncertainty, the market capitalization of stablecoins swelled up collectively to over $7bn in value in a matter of three months – with almost $6bn comprised of Tether investments.
Since the spring time, the rise of DeFi protocols have caused stablecoin markets to swell up by as much as $100 million each day – leaving the industry’s market cap more-than doubling in size since the start of the year.
Furthermore, more emerging trends surrounding the acceptance of stablecoin projects among banks have led to a greater level of acceptance among investors. The Liechtenstein-based Bank Frick recently announced that it would be supporting USD Coin – allowing customers to send, receive and store the stablecoin using their bank accounts.
The meteoric rise of the stablecoin market, coupled with ever-increasing levels of interest in blockchain technology from both banking institutions and big businesses alike means that stablecoins are set to emerge as the cryptocurrency market’s primary form of banking coin. But what will this development mean for coins like Ripple and investors who look to switch their holdings in Bitcoin to Litecoin, for instance, in order to leverage fast transactions?
Eating Into The Crypto Market
Payments using the coin were set to be swift and free of hefty processing fees that some early crypto assets commanded. The focus of the coin was set on interbank payments, but its early success caused Ripple to expand into a leading crypto payments network around the world.
At the height of its popularity, Ripple was easily accessible on leading crypto exchanges that allowed easy access to digital finance that could be easily traded.
However, Ripple also unwittingly formed the blueprint on how to build a successful stablecoin.
The implementation of stablecoins that are pegged to various assets designed to hold their value amid economic downturns while operating on an easy transactional framework with limited processing fees has placed numerous stablecoins in direct competition with Ripple.
With the arrival of other corporate-backed stablecoins like the JPM Coin and the Utility Settlement Coin Project, it’s clear that the old guard of XRP faces a significant battle to avoid being drowned out by the market’s new upstarts.
The financial might of corporate stablecoins means that Ripple’s swift payment systems may soon be bettered via new transactional developments.
However, there may be some hope for Ripple due to the coin’s longevity in a rapidly expanding market. Ripple has helped to onboard over 300 customers during its lifespan, and possesses a greater level of crypto experience compared to its competitors.
It’s clear that stablecoins are here for the foreseeable future, and even hold the potential to overhaul national fiat currencies in mainstream usage. With market caps inflating exponentially, the old guard of un-tethered cryptocurrencies may be at risk of losing out as more adopters look to find practicality and consistent prices within crypto assets.
For Ripple, the notion of competing to recapture its place as the industry’s preferred coin for transactions seems too whimsical given the financial might of these new players introducing stablecoins into the market place.
Instead, what was once looked upon as one of the world’s most promising cryptocurrencies will have to tap into its experience to adapt away from its swift transactional roots. The cryptocurrency market is based on natural selection, where only the most innovative survive. In this unforgiving climate, many of the pragmatic cryptocurrencies of yesterday will be required to explore new blockchain developments elsewhere to maintain their relevance to adopters.