Financial Experts Ponder Potential Overstatement of Stablecoin Transaction Volume versus Visa's Volume
Keeping Up with the Digital Greenbacks: Stablecoins, digital currencies pegged to stable assets like the USD, are seeing an increasing spotlight from top payment firms. Recent claims suggest that stablecoin transaction volumes have outpaced Visa's over the past year.
While this might seem like a groundbreaking development, industry insiders cast doubt upon these numbers. This article delves into the reasons behind their skepticism.
Feeding the Skepticism: The Suspicion Surrounding Stablecoin Volume
Recently, Chamath Palihapitiya, CEO of Social Capital, declared on Twitter that weekly stablecoin transaction volume had surpassed that of Visa, reaching an astounding $400 billion. Companies like Visa, Mastercard, and Stripe are reportedly jumping on this trend.
According to the data, Q4 of 2024 saw an average weekly stablecoin transaction volume of $464 billion, surpassing Visa's $319 billion. A Bitwise report estimates that stablecoins processed about $13.5 trillion in total transaction volume in 2024. This marks the first time stablecoin volume has outdone Visa's annual total.
At first glance, this may seem like a game-changer, hinting at a potential renaissance in global payments, even prompting Citigroup to foresee a $3.7 trillion stablecoin market by 2030.
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But not everyone shares the same excitement. Some experts have raised concerns that the reported stablecoin volume might be inflated. They argue that it doesn't accurately reflect real economic activity.
Joe, an advisor at Maven 11 Capital, pointed out that professional traders can generate massive volume with little initial capital on platforms like Solana.
"With $100,000 of USDC on Solana, you can execute ~$136 million of 'stablecoin volume' for just $1 in fees," Joe explained.
He gave Solana as an example, a swift blockchain with incredibly low transaction fees-roughly $0.0036 per transaction. In jest, Joe even stated that with $3,400, someone could double weekly stablecoin transaction volumes. Joe implied that the metric was effortlessly manipulable and therefore not overly reliable.
Dan Smith, a data specialist at Blockworks Research, concurred. Smith explained that using flash loans in DeFi can further inflate volume at a reduced cost.
Flash Loans allow users to borrow large sums without collateral as long as they repay within the same transaction. This allows for volume manipulation without needing much capital, casting further doubt on Palihapitiya's figures.
Rajiv, a member of Framework Ventures, was more blunt. He labeled stablecoin volume a "useless metric." Smith echoed this sentiment, adding that unusually high volume often resulted from exploitative behavior within the system.
Wash Trading and Bot Trading: Eroding Economic Significance
One primary reason experts question stablecoin volume is due to the prevalence of wash trading and bot trading.
Wash trading involves repeated buying and selling between wallets controlled by a single person or entity, with the intention of artificially inflating transaction volume. Bot trading employs automated programs to conduct trades, often for arbitrage or fake liquidity.
A single $1 million stablecoin transaction could just be money transferred between two wallets owned by the same person. This adds no real economic value compared to transactions on traditional systems like Visa, where each transaction typically represents a purchasing or payment of goods or services.
Last year, Visa's dashboard reported that only 10% of stablecoin transactions were genuine. A wash trading report by Chainalysis discovered that wash trades involving ERC-20 and BEP-20 tokens could account for up to $2.57 billion in volume in 2024.
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- Stablecoins, digital currencies tied to assets like the USD, have gained attention from major payment firms, with some claiming weeklong stablecoin transaction volumes surpassed Visa's, reaching $400 billion.
- In Q4 of 2024, average weekly stablecoin transaction volume was reported at $464 billion, surpassing Visa's $319 billion.
- A Bitwise report suggests stablecoins processed approximately $13.5 trillion in total transaction volume in 2024, marking the first time stablecoin volume has surpassed Visa's annual total.
- Some experts worry that the reported stablecoin volume might be inflated, as it doesn't accurately represent real economic activity.
- Joe, an advisor at Maven 11 Capital, pointed out that platforms like Solana can generate high volume with minimal initial capital, even enabling someone to double weekly stablecoin transaction volumes with $3,400.
- Dan Smith, a data specialist at Blockworks Research, agreed, stating that flash loans in DeFi can further inflate volume at a reduced cost.
- Rajiv from Framework Ventures labeled stablecoin volume a "useless metric," while Smith expressed concerns that unusually high volume often resulted from exploitative behavior within the system.
- Wash trading and bot trading, wherein transactions between the same wallets or automated programs are conducted, erode the economic significance of stablecoin volume.
- A wash trading report by Chainalysis revealed wash trades involving ERC-20 and BEP-20 tokens could account for up to $2.57 billion in volume in 2024.
