More than 90% of stablecoin transaction volumes aren’t coming from genuine users, according to a new metric co-developed by Visa, suggesting such crypto tokens may be far away from becoming a commonly used means of payment.

The dashboard from Visa and Allium Labs is designed to strip out transactions initiated by bots and large-scale traders to isolate those made by real people. Out of about US$2.2-trillion in total transactions in April, just $149-billion originated from “organic payments activity”, according to Visa.

Visa’s finding challenges stablecoin proponents’ argument that the tokens, pegged to an asset like the dollar, are poised to revolutionise the $150-trillion payments industry. PayPal and Stripe are among the fintech giants making inroads into stablecoins, with Stripe co-founder John Collison in April citing “technical improvements” for being bullish on the tokens.

“It says that stablecoins are still in a very nascent moment in their evolution as a payment instrument,” Pranav Sood, executive GM for Europe, the Middle East and Africa payments platform Airwallex, said of the data. “That’s not to say that they don’t have long-term potential, because I think they do. But the short-term and the mid-term focus needs to be on making sure that existing rails work much better.”

Tracking the “real” value of crypto activity using blockchain data has always been a challenge. Data provider Glassnode has estimated that the record $3-trillion of total market circulation assigned to digital tokens at the peak of the 2021 bull market was actually closer to $875-billion.

With stablecoins, transactions can often be double counted depending on the platform users are transferring funds to. For example, converting $100 of Circle Internet Financial’s USDC to PayPal’s PYUSD on the decentralised exchange Uniswap would result in $200 of total stablecoin volume being recorded on-chain, said Cuy Sheffield, Visa’s head of crypto.

Payments

Visa itself, which handled more than $12-trillion worth of transactions last year, is among companies that could stand to lose out should stablecoins become a generally accepted means of payment.

The total value of all stablecoins in circulation could reach $2.8-trillion by 2028, analysts at Bernstein predicted last year. That would be an almost 18-fold increase from their combined circulation now. Because transactions using such tokens are instantaneous and almost without cost, many in the crypto industry argue that they’re perfectly suited for disrupting the payments sector.

PayPal launched its PYUSD stablecoin last year, seeking a solution for instant and lower-cost transfers within its wider payment infrastructure. Stripe said on 25 April that it’s allowing merchants using its platform to accept stablecoins for online transactions.

Even so, Airwallex has seen tepid demand from its customers for stablecoin-based payments solutions as many still don’t regard the technology as user friendly enough, according to Sood.

“It’s a really significant barrier to overcome,” he said. “It’s important to remember that in the US, people are still using cheques to pay for somewhere between 40% and 60% of business payments, which gives you a sense of where the market really is in terms of technological adoption.” — Emily Nicolle, (c) 2024 Bloomberg LP