Stablecoins Are A Big Deal, But Not Where You'd Expect, Bernstein Says

Stablecoins are becoming a significant force in financial markets, but their impact is concentrated outside of traditional payments, according to a new report by Bernstein on Wednesday.

While their market capitalization has surged to approximately $220 billion—marking a 74% increase compared to last year—their primary use case remains within crypto capital markets rather than mainstream payment systems.

What Happened: Bernstein's analysis highlights that the vast majority of stablecoin activity is tied to crypto trading, lending applications, and decentralized finance rather than consumer payments.

"In retail domestic payments, stablecoins are a solution looking for a problem," the report states.

Existing financial rails, such as Automated Clearing House (ACH) and real-time payments (RTP), already provide cost-effective alternatives that are underutilized.

Additionally, credit cards continue to dominate due to the value-added services they offer, including chargeback protection and fraud mitigation.

However, stablecoins are gaining traction in cross-border financial transactions, particularly in remittances and business-to-business settlements.

Bernstein points out that traditional correspondent banking is outdated, costly and slow, creating an opening for stablecoins like USDC USDC/USD and USDT USDT/USD to streamline international money transfers.

"The correspondent banking system is a 20th-century infrastructure with many pain points—high costs, delays, limited data flow, and lack of programmability," the report explains.

Another emerging trend is the increasing integration of stablecoins into traditional financial institutions. Bernstein notes that stablecoin issuers collectively rank among the top 20 holders of U.S. Treasury securities, reinforcing the U.S. dollar's dominance in the global on-chain economy.

Also Read: Michael Saylor: Bitcoin Adoption Hindered By Institutional Under-Allocation

Why It Matters: The report suggests that stablecoin regulation could soon become a national priority in the U.S., with Congress potentially passing legislation such as the Clarity for Payments Stablecoin Act, which analysts estimate has a 70% chance of approval.

The report also highlights the economic incentives driving stablecoin adoption, particularly among fintech companies.

Stablecoin issuers benefit from "float income" earned on reserves held in Treasuries, which can be shared with distribution partners such as exchanges and payment processors.

This model encourages deeper integration with financial technology firms, potentially expanding the use of stablecoins beyond crypto-native applications.

Despite these developments, Bernstein remains cautious about stablecoins disrupting established payment networks. Retail payments, especially those requiring consumer adoption at scale, face a "chicken and egg" problem.

"Building both merchant and consumer networks simultaneously is a significant challenge," the report notes, emphasizing that stablecoin-based retail transactions have yet to find a compelling use case.

While stablecoins are unlikely to replace traditional payment systems in the near future, their role in cross-border finance, institutional settlements, and digital asset markets is rapidly expanding.

As regulatory frameworks develop and financial institutions deepen their involvement, the stablecoin ecosystem could see another wave of growth in the coming years.

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