Exploring the Potential of Emerging Blockchain in Stablecoin Adoption

The stablecoin market is growing rapidly and has become an important force in the digital economy, even competing with traditional financial networks. According to research, the total trading volume of stablecoins exceeded $10.8 trillion in 2023. After excluding non-natural transactions, the actual trading volume is about $2.3 trillion. This data reflects an organic annual growth rate of 17% for stablecoins, highlighting their increasingly important role in retail and institutional finance.

Ethereum has performed particularly well, with a market capitalization exceeding $100 billion at its peak, dominating the entire Blockchain ecosystem. This is closely related to Ethereum's role as a major platform for DeFi and stablecoin issuance, allowing it to maintain a strong position even amidst market volatility. Other Blockchains, such as BSC, Tron, and Solana, have relatively lower but stable market capitalizations. In particular, Tron and BSC have shown a stable growth trend, highlighting their roles as alternative platforms for stablecoins and DeFi, especially in regions and application scenarios where transaction costs and speed are crucial.

It is worth noting that emerging platforms like Arbitrum, Sui, and Optimism are gradually increasing in market capitalization, indicating a rising adoption rate. This growth trajectory suggests that as these ecosystems continue to mature, they may challenge existing leaders in the future by meeting specific needs or providing competitive transaction efficiency. Data indicates that although Ethereum dominates in overall market capitalization, other Blockchains are still attracting users and developers, signaling a potential shift in stablecoin activity as the ecosystem matures.

Ethereum leads with a stablecoin market capitalization of over $8 billion, reflecting its important role as a major stablecoin custody platform. The large market capitalization of Ethereum supports its position as a stablecoin hub, with demand primarily coming from DeFi applications and institutional users seeking compliant stablecoins. However, Tron has shown impressive performance as a major competitor, with a stablecoin market capitalization of about $4 billion. The appeal of Tron lies in its low transaction fees and fast processing speed, making it particularly popular in high-frequency trading scenarios, such as remittances and cross-border payments.

Other chains (such as BSC, Terra Classic, and Solana) have relatively small stablecoin market capitalizations but play a crucial role in diversifying the stablecoin ecosystem. For example, the stablecoin market capitalization of BSC is approximately $2 billion, attracting DeFi projects and retail users seeking lower fees than Ethereum. Smaller blockchains are positioned as niche platforms for stablecoins, often targeting specific use cases such as cross-border payments and microtransactions.

Ethereum: A Solid Leader

Ethereum is often regarded as the cornerstone of decentralized finance and remains the dominant chain for stablecoin activity, with a stablecoin market capitalization exceeding $8 billion. Several factors contribute to Ethereum's leadership in the stablecoin ecosystem:

• A mature and interconnected DeFi ecosystem: Ethereum's large and mature DeFi ecosystem includes well-known protocols that heavily rely on stablecoin liquidity for their operations. Stablecoins are critical for liquidity pools, lending, and yield farming, making Ethereum an indispensable platform for users seeking comprehensive DeFi services.

• Institutional and regulatory trust: Stablecoins on Ethereum have gained regulatory recognition and institutional trust. As more institutions enter the crypto space, Ethereum's reputation as a secure and decentralized network makes it an ideal choice for compliant, institutional-grade stablecoins.

• Diversified stablecoins and use cases: Ethereum hosts a wide range of stablecoins, including fiat-backed stablecoins, as well as algorithmic and decentralized stablecoins. This diversity allows Ethereum users to choose the stablecoin that best fits their risk tolerance, regulatory requirements, and preferences.

• Layer 2 solutions address scalability issues: Ethereum faces scalability challenges, and high Gas fees limit small users' participation in DeFi. However, Layer 2 solutions are significantly reducing transaction costs and increasing throughput, allowing Ethereum to continue to maintain its leadership in stablecoin use cases without sacrificing decentralization.

As Ethereum continues to develop its Layer 2 ecosystem and fully transition to Ethereum 2.0, its dominant position in the stablecoin market is expected to remain intact. As regulations surrounding stablecoins become clearer, institutional adoption is likely to grow further, potentially prompting the launch of more fiat-backed and compliant stablecoins on Ethereum. Additionally, Ethereum's DeFi ecosystem may continue to innovate, developing new stablecoin use cases, including synthetic assets, cross-chain stablecoins, and more complex yield-generating products.

Solana: A High-Performance Alternative to Ethereum

Solana is often seen as a high-performance alternative to Ethereum, known for its fast transaction speeds and low fees. Although the market capitalization of Solana's stablecoin is significantly lower than that of Ethereum, it has successfully attracted a loyal user base and is increasingly popular among retail users and developers seeking low-cost solutions.

• High-speed, low-cost transactions: Solana's unique proof-of-history consensus mechanism supports high throughput and low latency, allowing the network to process thousands of transactions per second at very low costs. This makes Solana an ideal choice for applications that require frequent transactions. Therefore, stablecoins are often used on Solana for daily payments and quick transfers within the ecosystem.

• Integration of payment and gaming applications: Solana positions itself as an ideal platform for industries such as gaming and payments, which have high demands for fast and inexpensive transactions. Its user-friendly development tools and support for high-performance applications make it the preferred platform for developers to build decentralized applications, which are often integrated with stablecoins.

• Network stability issues: Although Solana's high performance is a major advantage, it also faces network interruptions and stability problems. These downtimes have led some users to question its reliability, especially in high-value transactions or institutional use cases. Solana's network resilience is still in development, and it needs to address these technical challenges to gain the full trust of the stablecoin and DeFi markets.

• Collaboration with USDC and cross-chain solutions: The partnership between Solana and USDC issuer Circle is a key factor in promoting stablecoin adoption on the platform. The availability of USDC on Solana provides users with a reliable dollar-backed stablecoin, enhancing Solana's appeal. Additionally, Solana is exploring cross-chain solutions that will allow assets to flow seamlessly between Solana and Ethereum, offering users more flexibility and expanding its influence in the stablecoin market.

Solana has significant growth potential in the stablecoin space, especially if it can maintain network stability and further solidify its position in gaming and retail payments. By continuing its partnership with USDC and exploring cross-chain capabilities, Solana is expected to attract more stablecoin trading and DeFi applications. However, its centralized validator structure and network outage issues may limit its appeal to institutions unless these issues are addressed.

Key Conditions for Stablecoin Growth

As the appeal of stablecoins continues to grow in the cryptocurrency and financial markets, certain ecosystem features and environments are more conducive to the adoption and growth of stablecoins. These environments not only have technical advantages but also strategically meet the needs of retail users and institutional investors. Below are the specific characteristics of blockchain ecosystems that are most likely to experience a stablecoin explosion, along with the latest data and trends observed in the market.

1. Low transaction fees

Stablecoin trading is typically frequent and requires low latency, especially in scenarios where users rely on stablecoins for daily transactions, cross-border payments, and remittances. An ecosystem with low transaction fees and high scalability is more attractive, as it can facilitate cost-effective transactions without network congestion.

In a survey of stablecoin users conducted in 2023, over 60% of respondents indicated that transaction costs are a major factor in their choice of blockchain platform. The average transaction fee on Ethereum often exceeds $10 during periods of network congestion, while the average transaction fees on networks like Tron and BSC are below $0.10. This has attracted a large amount of USDT to migrate from Ethereum to Tron, which has captured about 30% of the USDT supply, largely due to its low fees, making it particularly attractive in areas with high cross-border remittance demand. Additionally, Binance Smart Chain continues to attract retail users to participate in its DeFi ecosystem due to transaction costs being significantly lower than those on Ethereum.

A blockchain environment with low fees and high scalability (such as Polygon's Ethereum Layer 2 solutions and Solana) is also very suitable for the growth of stablecoins. Solana can handle up to 65,000 transactions per second with low average fees, particularly in payment and gaming applications, where the adoption of its stablecoin is gradually increasing.

2. A powerful DeFi ecosystem with diverse use cases

The powerful DeFi ecosystem not only attracts stablecoin liquidity but also provides functionality beyond simple trading. In an environment with applications like lending and yield generation, stablecoins serve as a stable medium of exchange and collateral, becoming the core of various DeFi products.

Ethereum globally hosts over 70% of DeFi applications, with stablecoins accounting for nearly 50% of the total locked value in Ethereum DeFi protocols. This widespread use of stablecoins is a core reason for Ethereum's leading position in stablecoin adoption, despite its higher fees. As of the second quarter of 2024, the DeFi locked value on Ethereum is approximately $40 billion, with stablecoins occupying a significant portion.

Binance Smart Chain also has an active DeFi ecosystem, with some platforms widely using stablecoins as the basis for liquidity pools and lending markets. In 2023, the DeFi locked value on BSC exceeded $5 billion, with stablecoins accounting for about 40% of the liquidity pool. This practicality and the accessibility of the ecosystem further encourage the adoption of stablecoins.

3. Interoperability

As the crypto space gradually moves towards a multi-chain ecosystem, interoperability has become an important factor in the adoption of stablecoins. Stablecoins need to circulate seamlessly across different Blockchains to meet users' needs for trading or holding assets across multiple chains. Ecosystems that can facilitate easy cross-chain transfers of stablecoins will benefit from increased adoption.

According to the 2023 report, cross-chain stablecoin transfers account for about 25% of all stablecoin transactions. Solutions like Cosmos' Inter-Blockchain Communication protocol support the free flow of stablecoins across different chains in the Cosmos ecosystem, promoting broader liquidity and use cases.

Cosmos and Polkadot are two major ecosystems focused on interoperability. Cosmos's IBC protocol allows blockchains within its network to interact seamlessly, and stablecoins can also be easily transferred between chains, promoting their adoption within specific ecosystems, such as Terra's UST (before the collapse) and other stable assets issued by Cosmos chains. Polkadot's parachain structure offers similar interoperability, a feature that helps drive the adoption of stablecoins across DeFi and specialized applications.

Some projects also prioritize multi-chain issuance, and currently support multiple Blockchains. By achieving cross-chain compatibility, these ecosystems can enhance the utility of stablecoins and promote broader adoption.

4. Support regulatory compliance and mechanisms