JPMorgan Analysts Predict Growth of Yield-Generating Stablecoins
JPMorgan analysts predict that, in today’s high-interest-rate environment, yield-generating stablecoins will attract investors similarly to traditional money market funds. They estimate that in the future, the share of yield-generating stablecoins in the total market capitalization of stablecoins could rise from the current 6% to 50%.
Rapid Growth of Yield-Generating Stablecoins
According to a report from The Block, JPMorgan stated in a report released on Wednesday that yield-generating stablecoins currently account for only 6% of the total market capitalization of stablecoins, but they could expand significantly. Unless there are changes in regulation, they could capture as much as 50% of the market share.
Since the U.S. elections in November, the five major yield stablecoins (USDe from Ethena, USDS from Sky Dollar, BUIDL from BlackRock, USD0 from Usual Protocol, and USDY from Ondo Finance) have experienced rapid growth, with their total market capitalization rising from $4 billion to $13 billion (see the black line in the chart below).
Analysts expect this growth to continue. The U.S. Securities and Exchange Commission (SEC) recently approved Figure Markets’ application for its yield stablecoin YLDS, which has been registered as a security, providing further momentum for the sector.
(Blockchain Startup Figure Makes a Move! The First Yield-Generating Stablecoin Product YLDS Approved and Registered as a “Security”)
Why JPMorgan is Optimistic About Yield-Generating Stablecoins
JPMorgan’s optimism regarding yield-generating stablecoins is based on the following reasons:
- They provide interest without requiring holders to engage in risky trading or lending activities, or relinquish custody of their assets.
- Major crypto trading platforms like Deribit and FalconX now accept tokenized government bonds as collateral, allowing traders to earn returns from issued collateral.
Yield-Generating Stablecoins Classified as Securities Face Regulatory Restrictions
However, JPMorgan also points out that yield-generating stablecoins are classified as securities and are subject to regulatory restrictions, which limits their adoption, especially among retail investors. Additionally, traditional non-yield stablecoins still possess significant liquidity advantages.
Traditional stablecoins, such as USDT from Tether and USDC from Circle, do not share reserve earnings with users, as doing so would classify these assets as securities, a classification that would impose additional compliance requirements and hinder their seamless use as collateral in the current crypto ecosystem.
The total market capitalization of traditional stablecoins across various blockchains and centralized exchanges is approximately $220 billion, providing efficient, fast, and low-cost transactions even with high trading volumes. In contrast, yield-generating stablecoins are newer, smaller in scale, and relatively less liquid.
However, as yield-generating stablecoins gain further favor as sources of collateral in future crypto derivatives trading, DAO treasuries, liquidity pools, and idle cash for crypto risk funds, this liquidity disadvantage may diminish over time.
Yield-generating stablecoins may attract idle funds currently present in traditional stablecoins, but they are unlikely to represent the majority of the stablecoin market.
Nonetheless, yield-generating stablecoins have recently caught the attention of regulators. U.S. Senator Kirsten Gillibrand has stated that stablecoin issuers providing yield products may pose a threat to traditional banking and has called for stricter regulation.
(U.S. Senator: Yield-Generating Stablecoins Could Severely Impact Traditional Banking and Mortgage Systems, Calls for Strict Regulation)
Risk Warning
Investing in cryptocurrencies is highly risky, and their prices can be extremely volatile, which may result in the loss of your entire principal. Please assess risks carefully.