A new study by digital asset data provider Kaiko has found that Silvergate’s decision to shut down its instant payments network could boost investor adoption of stablecoins in cryptocurrency transactions.
Last week, Silvergate Capital announced the closure of its payments network, SEN, which was used by cryptocurrency exchanges and investors to move large amounts of dollars. The decision comes after the crypto-friendly bank revealed in a regulatory filing that it may soon be "undercapitalized." Shortly after the announcement, crypto firms including Coinbase and Kraken began ditching the bank. While Silvergate’s problems may affect crypto entities, as access to the global banking system has been a major challenge for them, Kaiko believes that the “death of SEN” will help stablecoins “become more common among traders.”
Instead of depositing dollars on exchanges that use banking rails like Silvergate’s SEN, investors will deposit dollars with stablecoin issuers to receive stablecoins before transferring them to exchanges, the study predicts.
Still, Kaiko said that stablecoin issuers will still need access to crypto banks, “so the risk is now further concentrated.” With the rise of stablecoins, the number of new fiat pairs listed on cryptocurrency exchanges around the world has declined. According to Kaiko, last year, the number of new USD pairs on the exchange dropped from 400 to 326.
The report found that since FTX’s implosion, USD market share has continued to decline relative to USDT and USDC. At the same time, stablecoins have become very popular among traders as they help reduce volatility in the crypto market. A recent report showed that stablecoin trading volumes will hit an all-time high in 2022, rising to $7.4 trillion from $6 trillion the year before.
The market size of stablecoins has surpassed all major credit card providers, including Mastercard, American Express and Discover, and is second only to Visa.
