Is there truly a competition between Visa and stablecoins

Is Visa’s evaluation of stablecoins an impartial examination, and who is responsible for the majority of transactions if not genuine users?
Stablecoins, the beacon of stability and functionality in the world of cryptocurrency, are confronting a significant dilemma: their actual utilization. A recent investigation conducted by Visa and Allium Labs has divulged that over 90% of stablecoin transactions do not originate from authentic users.
According to Cuy Sheffield, Visa’s Head of Crypto, the total value of transactions involving stablecoins as of April 24 in the preceding 30 days reached an astounding $2.65 trillion. However, only a small fraction, amounting to $265 billion, were recognized as stemming from “organic payments activity,” revealing a substantial disparity between reported and legitimate usage.
Despite this discrepancy, the study highlighted a continuous increase in the number of monthly active users of stablecoins, indicating a sustained interest in these digital assets.
This prompts the question: if the majority of transactions are not fueled by real users, then who is driving them, and what implications could this have for the cryptocurrency market?
What exactly is happening?
Stablecoins are digital currencies structured to uphold a stable value by linking them to an underlying asset, typically a fiat currency like the U.S. dollar. This stability makes them appealing for various purposes, such as trading, remittances, and daily transactions.
Notwithstanding their versatility, Visa’s data dashboard discloses that less than 10% of stablecoin transaction volumes are attributed to “organic payments activity.”
One key reason for this inconsistency is the prevalence of automated bots in the cryptocurrency realm. These bots can swiftly execute transactions in large volumes, distorting the perception of genuine user adoption and usage patterns.
Moreover, the adaptable nature of blockchain networks also contributes to this issue. Blockchain permits a diverse array of applications, including automated transactions, making it challenging to distinguish between transactions initiated by real users and those propelled by automated mechanisms.
Another factor influencing the variance in stablecoin transaction volumes is the double-counting of transactions. For instance, converting $100 of stablecoin A to stablecoin B on any exchange would result in $200 of recorded stablecoin volume, thereby inflating transaction volumes and creating a deceptive impression of the actual usage of stablecoins.
Visa and Allium Labs have employed two filters to detect such activities. The applied filters include a single-directional volume filter, which only accounts for the largest stablecoin amount transferred within a single transaction, thereby eliminating redundant internal transactions from complex smart contract interactions. Additionally, an inorganic user filter is utilized, considering only transactions sent by accounts that have initiated less than 1000 stablecoin transactions and $10 million in transfer volume over the preceding 30 days.
Despite the contrast between total transfer volume and bot-adjusted transfer volume, the analysis has revealed a consistent rise in the number of monthly active users of stablecoins. As of April 24, there were 27.5 million monthly active users across all chains, indicating a continuous growth trend.
Exploration of USDC and USDT utilization patterns
Visa’s examination uncovers a noteworthy surge in the usage of USD Coin (USDC) over the past eight months. In September 2023, USDC represented 23% of all stablecoin transactions analyzed by Visa. However, by the end of the year, this percentage had more than doubled, exceeding 50% of all stablecoin transactions. Since December 2023, USDC has consistently held a majority share of stablecoin transactions, peaking at 60% in February 2024.
This trend contrasts with the market capitalization of Tether (USDT) and USDC. As of May 7, USDT boasts a market cap of approximately $111 billion, significantly surpassing USDC’s market cap of just over $33 billion. This distinction suggests that while USDT remains the dominant stablecoin in terms of market cap, USDC’s utilization in actual transactions is outpacing USDT.
Pranav Sood, executive general manager for EMEA at payments platform Airwallex, expressed that Visa’s discoveries indicate that stablecoins are still in an early stage as a payment instrument, highlighting the necessity for enhancements in existing payment systems to ensure their efficacy. However, not all experts concur with Visa’s assessment.
Nick van Eck, co-founder of Agora, a startup specializing in stablecoins, criticized Visa’s methodology, contending that the data may encompass trading firms, which are legitimate entities utilizing stablecoins, thereby skewing the perception of actual user adoption.
Visa’s report and the ascent of stablecoins
Visa’s recent report aligns with the escalating significance of stablecoins in facilitating cross-border payments. According to Sacra, a market research firm, the volume of stablecoin transactions has surged from $26 billion in January 2020 to an astonishing $1.4 trillion in April 2024 and could potentially surpass Visa’s total payments volume in the second quarter of 2024. Sacra further reported that stablecoin transactions are processed within minutes, a stark contrast to the 6 to 9 hours required by traditional systems. In terms of cost efficiency, stablecoin transactions are also cheaper, with fees as low as $0.0037, as opposed to the average $12 fee for conventional methods.
Meanwhile, major financial institutions, including Wells Fargo, JPMorgan Chase, Visa, and Mastercard, are exploring the integration of stablecoins to enhance their payment infrastructure. The question that remains unanswered is whether Visa’s reports are intended to present factual information or if they are aimed at undermining the competition.