Three major trends driving the widespread adoption of stablecoins: savings, payments, and Decentralized Finance yields.

Author: William Nuelle

Compiled by: Shenchao TechFlow

After a significant decline in the global stablecoin asset scale over the past 18 months, the adoption of stablecoins is accelerating again. Galaxy Ventures believes that the re-acceleration of stablecoins is driven by three long-term factors: (i) the adoption of stablecoins as a savings tool; (ii) the adoption of stablecoins as a payment tool; and (iii) DeFi as a source of returns above the market, which absorbs digital dollars. As a result, the supply of stablecoins is currently in a phase of rapid growth, expected to reach $300 billion by the end of 2025 and ultimately $1 trillion by 2030.

The asset management scale of stablecoins has grown to 1 trillion USD, which will bring new opportunities to the financial market and also lead to new transformations. Some transformations we can currently predict, such as bank deposits in emerging markets soon shifting towards developed markets, and regional banks transitioning to globally systemically important banks (GSIB). However, there are also some changes that we cannot foresee at this moment. Stablecoins and DeFi are foundational, not peripheral innovations, and they may fundamentally change credit intermediation in entirely new ways in the future.

Three Major Trends Driving Adoption: Savings, Payments, and DeFi Yields

Three adjacent trends are driving the adoption of stablecoins: using them as a savings tool, using them as a payment tool, and using them as a source of returns above the market.

Trend 1: Stablecoins as a Savings Tool

Stablecoins are increasingly being used as a savings tool, especially in emerging markets (EM). In economies like Argentina, Turkey, and Nigeria, the structural weakness of their national currencies, inflationary pressures, and currency devaluation have led to an organic demand for the US dollar. Historically, as noted by the International Monetary Fund (IMF), the circulation of the dollar has been restricted in many emerging markets, becoming a source of financial stress. Argentina's capital controls (Cepo Cambiario) further limit the circulation of the dollar.

Stablecoins have bypassed these restrictions, allowing individuals and businesses to easily and directly obtain dollar-backed liquidity via the internet. Consumer preference surveys show that obtaining dollars is one of the primary reasons emerging market users engage with cryptocurrencies. A study conducted by Castle Island Ventures indicates that two of the top five use cases are "saving in dollars" and "converting my local currency to dollars," with 47% and 39% of users citing these as reasons for using stablecoins, respectively.

Although it is difficult for us to understand the scale of savings in emerging markets based on stablecoins, we know that this trend is growing rapidly. Stablecoin settlement card businesses like Rain (portfolio company), Reap, RedotPay (portfolio company), GnosisPay, and Exa have all embraced this trend, allowing consumers to spend their savings at local merchants through the Visa and Mastercard networks.

In the context of the Argentine market, the fintech/crypto application Lemoncash stated in its 2024 crypto report that its $125 million in "deposits" accounts for 30% of the market share of centralized crypto applications in Argentina, second only to Binance's 34%, outperforming Belo, Bitso, and Prex. This figure implies that the asset management scale of Argentine crypto applications is (AUM) at $417 million, but the actual asset management scale of stablecoins in Argentina may be at least 2-3 times that of stablecoin balances in non-custodial wallets like MetaMask and Phantom. Although these amounts seem small, the $416 million represents 1.1% of Argentina's M1 money supply, and $1 billion accounts for 2.6%, and is still growing. Furthermore, considering that Argentina is just one of the emerging market economies where this global phenomenon applies. The demand for stablecoins among emerging market consumers may expand horizontally across various markets.

Trend 2: Stablecoins as Payment Tools

Stablecoins have also become a viable alternative payment method, particularly competing with SWIFT in cross-border use cases. Domestic payment systems often operate in real-time domestically, but stablecoins present a clear value proposition when compared to traditional cross-border transactions that require more than one business day. As Simon Taylor pointed out in his article, over time, the functionality of stablecoins may resemble that of a meta-platform connecting payment systems.

Artemis released a report showing that B2B payment use cases contributed a monthly payment volume of $3 billion (annualized at $36 billion) among the 31 companies surveyed. By communicating with custodians handling most of these payment processes, Galaxy believes that this figure annualizes to over $100 billion across all non-cryptocurrency market participants.

Importantly, the Artemis report found that B2B payment volumes increased fourfold year-on-year from February 2024 to February 2025, demonstrating the scale growth required for sustained growth in AUM. There has not yet been a study on the velocity of circulation of stablecoins, so we cannot correlate total payment volumes with AUM data, but the growth rate of payment volumes suggests that AUM has also grown correspondingly due to this trend.

Trend Three: DeFi as a Source of Higher Returns than the Market

Finally, for most of the past five years, DeFi has been generating structurally higher dollar-denominated yields than the market, allowing consumers with good technical skills to obtain returns of 5% to 10% with very low risk. This has already and will continue to drive the adoption of stablecoins.

DeFi itself is a capital ecosystem, one of its notable features is that the underlying "risk-free" interest rates, such as those from Aave and Maker, reflect the broader crypto capital markets. In my 2021 paper "The Risk-Free Rate of DeFi," I pointed out that the supply rates from Aave (note: an open-source, decentralized lending protocol that allows users to deposit crypto assets to earn interest or borrow assets), Compound (note: one of the DeFi lending protocols that uses an algorithmic mechanism to automatically adjust interest rates), and Maker (note: one of the earliest DeFi projects, whose core product is the DAI stablecoin, a decentralized stablecoin pegged to the US dollar at a 1:1 ratio) are reactive to underlying trading and other leverage demands. As new trades or opportunities arise — for example, yield farming on Yearn or Compound in 2020, basis trading in 2021, or Ethena in 2024 — the foundational yield of DeFi rises as consumers need to collateralize loans to allocate to new projects and uses. As long as blockchain continues to generate new ideas, the foundational yields of DeFi should strictly exceed the yields of U.S. Treasuries (especially in cases where tokenized money market funds offering foundational yields are launched).

As the "native language" of DeFi is stablecoins rather than the US dollar, any "arbitrage" attempt to provide low-cost USD capital to meet the specific micro-market demand will have the effect of expanding the supply of stablecoins. Narrowing the interest rate spread between Aave and US Treasuries requires stablecoins to expand into the DeFi space. As expected, during periods when the interest rate spread between Aave and US Treasuries is positive, the total locked value (TVL) will increase, while during periods when the spread is negative, the TVL will decrease (showing a positive correlation):

Bank Deposit Issues

Galaxy believes that the long-term adoption of stablecoins for savings, payments, and earning returns is a major trend. The adoption of stablecoins may lead to the disintermediation of traditional banks, as it allows consumers to directly access dollar-denominated savings accounts and cross-border payments without relying on bank infrastructure, thus reducing the deposit base that traditional banks use to stimulate credit creation and generate net interest margins.

Bank Deposit Alternative

For stablecoins, the historical model is that each $1 actually corresponds to $0.80 in treasury bills and $0.20 in the bank account deposits of the stablecoin issuer. Currently, Circle has $8 billion in cash ($0.125), $53 billion in ultra-short-term U.S. Treasury securities (UST) or repurchase agreements ($0.875), while USDC amounts to $61 billion. (We will discuss repurchases later.) Circle's cash deposits are primarily held at BNY Mellon, as well as at New York Community Bank, Cross River Bank, and other leading U.S. financial institutions.

Now imagine that Argentine user in your mind. The user has 20,000 Argentine pesos worth of funds in Argentina's largest bank — Banco de la Nación Argentina (BNA). To avoid inflation of the Argentine peso (ARS), the user decides to increase their holdings by 20,000 USDC. (Since the specific mechanisms for handling ARS may affect the USD to ARS exchange rate, it is worth considering separately.) Now, with USDC, the user's 20,000 Argentine pesos at BNA actually represent 17,500 USD in U.S. government short-term loans or repurchase agreements, and 2,500 USD in bank deposits, which are distributed among the Bank of New York Mellon, New York Commercial Bank, and Cross River Bank.

As consumers and businesses transfer their savings from traditional bank accounts to stablecoin accounts such as USDC or USDT, they are effectively moving deposits from regional/commercial banks to U.S. Treasury securities and deposits at major financial institutions. The implications are profound: while consumers maintain dollar-denominated purchasing power by holding stablecoins (and through card integrations like Rain and RedotPay), the actual bank deposits and Treasury securities that back these tokens will become more concentrated, rather than dispersed throughout the traditional banking system, thereby reducing the deposit base available for lending at commercial and regional banks, while making stablecoin issuers significant players in the government debt market.

Forced Credit Tightening

One of the key social functions of bank deposits is to lend to the economy. The fractional reserve system — the practice by which banks create money — allows banks to lend out several times the amount of their deposit base. The total multiplier in a region depends on factors such as local bank regulation, foreign exchange and reserve volatility, and the quality of local lending opportunities. The M1/M0 ratio (money created by banks divided by central bank reserves and cash) tells us the "money multiplier" of a banking system:

Continuing with Argentina as an example, converting a deposit of 20,000 USD into USDC will transform the local 24,000 USD credit creation in Argentina into 17,500 USD of UST/repurchase bonds and 8,250 USD of American credit creation (2,500 USD x 3.3 times the accumulation ). When the M1 supply accounts for 1%, this impact is hard to notice, but when the M1 supply accounts for 10%, this impact may become noticeable. At some point, regional banking regulators will be forced to consider shutting off this faucet to prevent credit creation and financial stability from being compromised.

Over-allocation of Credit by the U.S. Government

This is undoubtedly good news for the U.S. government. Currently, stablecoin issuers are the twelfth largest buyers of U.S. Treasury bonds, and their asset management scale is growing at the rate of stablecoin asset management. In the near future, stablecoins may become one of the top five buyers of U.S. Treasury bonds (UST).

A new proposal similar to the "Genius Act" requires that all Treasury bonds be supported either in the form of repurchase agreements or in the form of short-term Treasury bonds with maturities of less than 90 days. Both methods will significantly enhance the liquidity of key components of the U.S. financial system.

When the scale is large enough (for example, 1 trillion dollars), this could have a significant impact on the yield curve, as U.S. Treasury securities with maturities of less than 90 days would have a large buyer that is insensitive to price, thereby distorting the interest rate curve that the U.S. government relies on for financing. That said, the Treasury repo (Repo) has not actually increased demand for short-term U.S. Treasuries; it has merely provided a pool of available liquidity for secured overnight borrowing. The liquidity in the repo market is mainly borrowed by major U.S. banks, hedge funds, pension funds, and asset management companies. For example, Circle actually uses a large portion of its reserves for overnight loans collateralized by U.S. Treasury bills. This market has a scale of 4 trillion dollars, so even if the stablecoin reserves allocated to repos amount to 500 billion dollars, stablecoins are still an important participant. All this liquidity flowing into U.S. Treasuries and bank borrowing benefits U.S. capital markets while harming global markets.

One hypothesis is that as the value of stablecoins grows to exceed $1 trillion, issuers will be forced to replicate bank loan portfolios, including a mix of commercial credit and mortgage-backed securities, to avoid over-reliance on any single financial product. Given that the GENIUS Act provides a pathway for banks to issue "tokenized deposits," this outcome may be unavoidable.

New Asset Management Channel

All of this has created an exciting new channel for asset management. In many ways, this trend is akin to the ongoing transition from bank loans to non-bank financial institution (NBFI) loans following the Basel III Accord, which limits the scope and leverage of bank lending after the financial crisis.

Stablecoins siphon funds from the banking system, effectively drawing money from specific sectors within the banking system (such as emerging market banks and developed market regional banks). As noted in Galaxy's "Cryptocurrency Lending Report," we have seen the rise of Tether as a non-bank lender (beyond U.S. Treasury bonds), and other stablecoin issuers may become equally significant lenders over time. If stablecoin issuers decide to outsource credit investments to specialized firms, they will immediately become LPs of large funds and open up new asset allocation channels (such as insurance companies). Major asset management firms like Blackstone, Apollo, KKR, and BlackRock have achieved scale expansion in the context of transitioning from bank loans to non-bank financial institution loans.

Efficient Frontier of On-chain Yield

Finally, what can be lent is not just basic bank deposits. Each stablecoin is both a claim on the underlying dollar and a value unit on the chain itself. USDC can be borrowed on-chain, and consumers will need returns priced in USDC, such as Aave-USDC, Morpho-USDC, Ethena USDe, Maker's sUSDS, Superform's superUSDC, and so on.

The "vault" will provide consumers with on-chain yield opportunities at attractive rates, thus opening up another asset management channel. We believe that in 2024, the portfolio company Ethena will connect basis trading (note: the difference between the spot price and the futures price of a certain commodity at a specific time and place) to USDe, opening the "Overton Window" (note: describes the range of policies or ideas that are considered acceptable by the public at a specific point in time) for US dollar-denominated on-chain yields. New vaults will emerge in the future, tracking various on-chain and off-chain investment strategies, which will compete for USDC/T holdings within applications such as MetaMask, Phantom, RedotPay, DolarApp, and DeBlock. Subsequently, we will create an "effective frontier of on-chain yields" (note: helps investors find the best balance between risk and reward), and it is not hard to imagine that some of these on-chain vaults will specifically provide credit for regions such as Argentina and Turkey, where banks are facing the risk of large-scale loss of this capability:

Conclusion

The integration of stablecoins, DeFi, and traditional finance not only represents a technological revolution but also signifies the reconstruction of global credit intermediation, reflecting and accelerating the shift from bank to non-bank lending post-2008. By 2030, the asset management scale of stablecoins is expected to approach $1 trillion, thanks to their use as a savings tool in emerging markets, efficient cross-border payment channels, and DeFi yields that exceed market rates. Stablecoins will systematically siphon deposits from traditional banks and concentrate assets in U.S. Treasury bonds and major U.S. financial institutions.

This transformation brings both opportunities and risks: stablecoin issuers will become important participants in the government debt market and may become new credit intermediaries; while regional banks (especially in emerging markets) face credit tightening as deposits shift to stablecoin accounts. The end result is a new asset management and banking model, where stablecoins will serve as a bridge to the forefront of efficient digital dollar investments. Just as shadow banking filled the void left by regulated banks after the financial crisis, stablecoins and DeFi protocols are positioning themselves as the dominant credit intermediaries of the digital age, which will have profound implications for the future architecture of monetary policy, financial stability, and global finance.

Source: Deep Tide TechFlow