Is there truly a competition between Visa and stablecoins?

Is Visa’s analysis of stablecoins unbiased, and if not, who is responsible for the majority of transactions if not genuine users?

Stablecoins, which aim to provide stability and utility in the world of cryptocurrency, are facing a significant challenge when it comes to their actual usage. A recent study conducted by Visa and Allium Labs has revealed that over 90% of stablecoin transactions are not coming from real users.

Cuy Sheffield, the Head of Crypto at Visa, reported that the total value of stablecoin transactions in the past 30 days leading up to April 24 amounted to a staggering $2.65 trillion. However, only a fraction of this, $265 billion, was identified as originating from “organic payments activity.” This massive gap between reported and authentic usage raises the question of who is behind these transactions and what it means for the crypto market.

So, what is really happening? Stablecoins are cryptocurrencies that are designed to maintain a stable value by being pegged to an underlying asset, usually a fiat currency like the US dollar. This stability makes them attractive for various purposes, such as trading, remittances, and everyday transactions.

However, according to Visa’s dashboard, less than 10% of stablecoin transaction volumes are considered to be from “organic payments activity.” One major reason for this discrepancy is the prevalence of bots in the crypto space. These bots can execute transactions at high speeds and volumes, distorting the perception of real user adoption and usage patterns.

Additionally, the flexible nature of blockchain networks also contributes to this challenge. Blockchain allows for a wide range of use cases, including automated transactions. This flexibility makes it difficult to differentiate between transactions made by real users and those driven by automated processes.

Another factor that contributes to the difference in stablecoin transaction volumes is the double-counting of transactions. For example, converting $100 of stablecoin A to stablecoin B on any exchange would result in $200 of recorded stablecoin volume. This practice can inflate transaction volumes and create a misleading impression of the actual usage of stablecoins.

Visa and Allium Labs have employed two filters to identify such activities. These filters include a single-directional volume filter, which only counts the largest amount of stablecoin transferred within a single transaction, eliminating redundant internal transactions from complex smart contract interactions. Additionally, an inorganic user filter is applied, considering only transactions sent by accounts that have initiated less than 1000 stablecoin transactions and $10 million in transfer volume over the last 30 days.

Despite the difference in total transfer volume and bot-adjusted transfer volume, the analysis revealed a consistent increase in the number of monthly active stablecoin users. As of April 24, there were 27.5 million monthly active users across all chains, indicating a steady growth trend.

When analyzing the usage trends of USD Coin (USDC) and Tether (USDT), Visa’s analysis shows significant growth in the usage of USDC over the past eight months. In September 2023, USDC accounted for 23% of all stablecoin transactions analyzed by Visa. By the end of the year, this figure had more than doubled, surpassing 50% of all stablecoin transactions. Since December 2023, USDC has consistently accounted for a majority share of stablecoin transactions, reaching as high as 60% in February 2024.

This trend contrasts with the market capitalization of USDT and USDC. As of May 7, USDT has a market cap of approximately $111 billion, much higher than USDC’s market cap of just over $33 billion. This suggests that while USDT remains the dominant stablecoin in terms of market capitalization, USDC’s usage in actual transactions is outpacing USDT.

Pranav Sood, the executive general manager for EMEA at payments platform Airwallex, commented that Visa’s findings indicate that stablecoins are still in their early stages as a payment instrument. He suggested the need for improvements in existing payment systems to ensure their effectiveness.

However, not all experts agree with Visa’s analysis. Nick van Eck, the co-founder of Agora, a startup specializing in stablecoins, criticized Visa’s methodology. He argued that the data may include legitimate trading firms that utilize stablecoins, which could skew the perception of actual user adoption.

Visa’s recent report aligns with the increasing importance of stablecoins in facilitating cross-border payments. According to market research firm Sacra, the volume of stablecoin transactions has surged from $26 billion in January 2020 to a staggering $1.4 trillion in April 2024. Sacra further reported that stablecoin transactions are processed within minutes, a significant contrast to the 6 to 9 hours required by traditional systems. In terms of cost, stablecoin transactions are also cheaper, with fees as low as $0.0037 compared to the average $12 fee for traditional methods.

Major banks, including Wells Fargo, JPMorgan Chase, Visa, and Mastercard, are exploring the use of stablecoins to enhance their payment infrastructure.

The question that remains is whether Visa’s reports are simply stating the facts or if they are attempting to undermine the competition.

Read more: How reliable are stablecoins?