August 9, 2023 at 15:12 GMTModified date: August 9, 2023 at 15:12 GMT
August 9, 2023 at 15:12 GMT

Over $2trn growth expected for stablecoin market: Bernstein

The stablecoin market is predicted to rocket from its current value of $125billion to $2.8trillion in the coming five years, according to research from Bernstein. 

Over $2trn growth expected for stablecoin market: Bernstein

The stablecoin market is predicted to rocket from its current value of $125billion to $2.8trillion in the coming five years, according to research from Bernstein. 

Growth is especially expected in customer platforms with more brands anticipated to release their own token, according to Coinnews’ reporting of the analysis. 

“We expect major global financial and consumer platforms to issue co-branded stablecoins to power value-exchange on their platforms,” Bernstein’s research said.

Bernstein predicted that customer platforms will integrate stablecoins, giving users more options to interact with crypto products. The forecast follows the announcement of PayPal’s own stablecoin, which was unveiled earlier this week . 

Stablecoins are a type of cryptocurrency that’s price is equivalent to another asset. Most commonly they are pegged to the US dollar. Bernstein expects that regulated stablecoins will flourish and lead the anticipated sector growth. 

The report said: “Stablecoin regulation enjoys more political support than crypto regulation.”

It noted that multiple markets, such as Singapore, Hong Kong and Japan, have launched pilot projects for stablecoins.

New PayPal stablecoin 

While Bernstein predicts the stablecoin market to boom over the next five years, the new PayPal token is currently being rolled out. 

PayPal USD, which goes under the ticker PYUSD, is a tokenised stablecoin pegged to the US dollar. Every token is backed by the equivalent of $1 of deposits, meaning it can be redeemed for a dollar. 

Dan Schulman, president and CEO, PayPal, said: “The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar.” 

It is being issued by the Paxos Trust Company, who have also launched the USDP stablecoin and the Pax Gold cryptocurrency. 

PYUSD is currently only an ERC-20 token, having launched on the Ethereum blockchain

The press release said: “PayPal USD will be available to an already large and growing community of external developers, wallets and web3 applications, can be easily adopted by exchanges, and will be deployed to power experiences within the PayPal ecosystem.”

Tokenisation growth

A $2.6trn rise in the stablecoin market is not the only bold claim made by Bernstein this year. The broker forecasted tokenisation opportunities could reach $5trn over the next five years, which is 2% of all global money. 

It said stablecoins and central bank digital currencies would make up a significant amount of this growth. The rise in tokens would also be catalysed by private market funds, securities and real estate. 

“Stablecoins and CBDC tokens, coupled with yield farming in decentralized markets, will compete with bank deposits as an investment or saving instrument,” the report said. 

It added: “Over the next five years, we expect a swell in the stablecoins and CBDC tokens in circulation, led by China’s CBDC program.”

But Bernstein recognised the role of regulation and the current unfriendly attitude to cryptocurrencies as a potential barrier. 

There is especially skepticism surrounding stablecoins following the collapse of the algorithmic coins TerraUSD and LUNA in 2022. These coins were not backed by the equivalent amount of deposits. Instead there was a reliance on algorithms, which eventually caused its downfall.

But PayPal’s new token is powered by Paxos, which has received a license from New York regulators.

Bernstein said: “Tokenization using blockchain can only succeed when policy-makers appreciate the benefits of blockchains and how crypto tokens are an indispensable part of blockchain operations.”