Wall Street bank JPMorgan Chase (JPM) said that stablecoin supply could reach $500 billion to $600 billion by 2028, well below the most optimistic expectations of $2 trillion to $4 trillion.
According to Bank of America, the largest bank by assets, demand for stablecoins is still primarily a demand from the cryptocurrency market rather than payments.
JPMorgan Chase pointed out that the stablecoin market has grown by approximately US$100 billion this year to approximately US$308 billion, led by Tether’s USDT and Circle’s USDC.
Demand remains primarily driven by cryptocurrency trading and collateral demand for derivatives and decentralized finance (DeFi), with derivatives trading venues adding approximately $20 billion in stablecoin holdings amid a surge in perpetual futures activity, the report said.
“The vast majority of stablecoin demand stems from their use as cash or collateral in the crypto ecosystem to facilitate crypto transactions including derivatives trading, DeFi lending,” analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday.
Stablecoins are cryptocurrencies that are pegged to an asset such as fiat currency or gold, but most commonly the U.S. dollar. They underpin much of the crypto economy, serving as payment rails and vehicles for moving funds across borders.
Analysts say there is currently less of a push for payments but could grow as more providers test stablecoin-based cross-border transfer rails.
Nonetheless, the report stated that wider payment usage does not automatically require greater stablecoin circulation, as velocity (i.e. how quickly a token circulates) is likely to rise as integration deepens.
Banks and payment networks are also protecting their role in institutional flows through tokenized deposits and other blockchain initiatives, while central bank digital currency (CBDC) efforts could provide regulated alternatives to compete with private stablecoins, the report added.
Read more: Stablecoin adoption is “exploding” — here’s why Wall Street is going all-in
