Real User Participation in Stablecoin Transactions Less Than 10%

A report from Visa and Allium Labs revealed that less than 10% of stablecoin transaction volumes can be attributed to organic or genuine human activity.

The stablecoin market, dominated by Tether (USDT) and USD Coin (USDC), is going through some changes and challenges at the moment. A recent Visa report suggests that less than 10% of stablecoin transaction volumes stem from genuine human activity, which raises some concerns about the very large scale of non-organic transactions. Despite this, the stablecoin market continues to grow, with approximately 27.5 million monthly active users.

USDC is also starting to establish itself as a formidable competitor to USDT, with regulatory compliance and proactive approaches to regulatory frameworks making it much more attractive when compared to USDT’s “shady” reputation. Tether, in response to backlash and regulatory scrutiny, is teaming up with Chainalysis to improve monitoring and combat illicit activities.

Stablecoin Stats

According to the findings of a report from Visa and data platform Allium Labs, less than 10% of stablecoin transaction volumes can be attributed to organic or genuine human activity. Out of the $2.2 trillion in total transactions recorded in April, only $149 billion originated from what the report calls "organic payments activity." This analysis excludes transactions conducted by bots and large-scale traders, focusing solely on those made by real people.

The stablecoin market, which is currently valued at around $150 billion, is largely dominated by Tether (USDT) and USD Coin (USDC). They each hold market shares of 75% and 22%, respectively.

Despite the huge amount of non-organic transaction volumes, the report still pointed out a consistent growth in monthly active stablecoin users. Across all blockchain networks, there are approximately 27.5 million monthly active users interacting with stablecoins. This could certainly suggest a steady growing interest and adoption of stablecoins, albeit with a backdrop of non-human-driven transaction activity.

Stablecoins vs. Visa

Research firm Sacra suggests that stablecoins might surpass Visa in total payment volume this quarter. Sacra's co-founder, Jan-Erik Asplund, argues that stablecoins are highly suitable for cross-border transactions mostly because of their convenience, speed, and cost-effectiveness. Asplund also pointed out that major banks are starting to integrate stablecoins into their payment infrastructure.

On the other hand, Visa's head of crypto, Cuy Sheffield, disagrees. He claims that stablecoin data is noisy and often includes transactions not indicative of genuine user activity. In fact, as seen above, a massive portion of stablecoin transactions involve bot activity and automated processes.

Despite this controversy, the stablecoin market is rapidly growing, especially with a lot of involvement from payment giants like PayPal and Stripe. Other players, like Ripple, are also entering the market with their own stablecoin offerings.

What are Stablecoins?

Stablecoins are a specialized form of cryptocurrency designed to maintain a stable value by pegging it to an external reference, like a fiat currency or commodity like gold. Their main objective is to offer a reliable alternative to the volatile nature of mainstream cryptos like Bitcoin, making them much more suitable for everyday transactions.

There are three main types of stablecoins: fiat-collateralized, crypto-collateralized, and non-collateralized (algorithmic). Fiat-collateralized stablecoins are backed by reserves of assets like fiat currency or gold, which support the stablecoin's value. In contrast, non-collateralized stablecoins use software algorithms to adjust the coin's supply dynamically, maintaining a stable price based on demand.

Despite their growing popularity and utility, stablecoins face increased scrutiny from regulators because of their potential impact on the broader financial system. Regulatory bodies worldwide are closely monitoring stablecoin activities to make sure they comply with financial laws and protect investors.

In the cryptocurrency ecosystem, stablecoins serve a critical role by providing the benefits of blockchain technology—speed, security, and transparency—without the price volatility associated with traditional cryptocurrencies. Stablecoins have expanded their use cases to include various financial services like lending platforms and even everyday transactions for goods and services.

Stablecoin Showdown

While USDC and USDT are the players to beat in the stablecoin industry, one is starting to outshine the other.

The stablecoin market is seeing a major shift in dynamics, with USDC emerging as a serious competitor to USDT, the longtime leader in the sector. USDC has impressed the crypto space with a few surprising milestones like surpassing USDT in monthly transactions and consistently increasing transaction volumes.

Total monthly stablecoin transaction volume of USDT and USDC (Source: Allium Labs)

USDC's rise can be attributed to a number of factors, including its transparent and regulated nature compared to USDT's offshore and almost “shady” status. USDC's compliance with U.S. regulations and its proactive approach to regulatory frameworks, like the Lummis-Gillibrand Payment Stablecoin Act in the U.S. and the Markets in Crypto-Assets framework in the European Union, have boosted its appeal to institutional investors who are looking for more regulatory-compliant options.

In contrast, USDT's offshore establishment and historical concerns about the transparency of its reserves have caused quite a few legal challenges in the regulatory landscape over the past few months. Although Tether has tried to take certain steps to improve its public image, like completing independent audits, it still faces scrutiny and regulatory uncertainty.

With USDC's proactive approach to regulatory frameworks and its active efforts to cater to specific markets, like the European Union with EURC, Tether is facing increasing pressure to adapt and comply with regulatory requirements to keep its dominant position in the market.

Tether's New Solution to Combat Illicit Activities

Nevertheless, it seems the company is still actively working on fixing its reputation. In fact, Tether is set to improve its monitoring capabilities in the secondary market through a solution developed by Chainalysis, a well known blockchain analysis firm. This new solution will provide Tether with insights into market activities and identify wallets potentially linked to illicit or sanctioned addresses.

Among the tools included in this solution are Sanctions Monitoring, which will flag addresses and transactions involving sanctioned entities, and Illicit Transfer Detector, which is designed to identify transactions that are associated with activities like terrorism financing. Additionally, Categorization will classify USDT holders by type, like exchange or darknet market, while Largest Wallet Analysis will focus on big USDT holders and their activities.

Paolo Ardoino, Tether's CEO, sees the collaboration with Chainalysis as a very important step when it comes to enhancing transparency and security in the crypto industry. Despite Tether's collaboration with authorities in 43 jurisdictions to address illicit activities, there are still some concerns about its alleged involvement in criminal activities and terrorism financing.

These concerns have led to serious scrutiny from lawmakers, including United States Senator Cynthia Lummis, who called for an investigation into Tether's role in facilitating violations of sanctions laws, specifically in the context of the Hamas attacks on Israel. Additionally, a report from the United Nations Office on Drugs and Crime places the spotlight on the role of cryptocurrencies, and USDT, in financing crime in East and South East Asia.

Tether has faced criticism not only for its alleged involvement in illicit activities but also for its lack of financial transparency. Despite these challenges, Tether is still a very dominant force in the stablecoin market.

Tether’s collaboration with Chainalysis is a big step towards strengthening oversight and integrity in the cryptocurrency ecosystem.