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Stablecoins Overhyped? Bots Drive 90% of Activity on Ethereum and Solana

Last Updated May 7, 2024 9:40 AM
Teuta Franjkovic
Last Updated May 7, 2024 9:40 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Visa’s new data dashboard reveals that over 90% of stablecoin transactions are automated, not human-driven.
  • Unfiltered stablecoin data can distort the picture of real-world usage due to automated DeFi activity.
  • Visa’s adjusted data highlights a significant difference between DeFi mechanisms and traditional financial transactions.
  • The news appears to contradict the idea that stablecoins could enter mainstream finance.

According to Visa and enterprise blockchain data provider Allium, the vast majority of stablecoin transactions are associated with “inorganic activity”.

The companies have introduced a new data dashboard  to address potential distortions from such activity and other artificial inflationary tactics. This tool shows that over 90% of the transactions it monitors occur without human involvement.

This news could come as a blow to suggestions that stablecoins could enter the mainstream financial space.

Visa Reports Majority of Stablecoin Transactions Automated

Visa, in collaboration with Allium, suggests a different narrative in its recent report, revealing that most stablecoin transactions may not involve human actions.

Their new data dashboard , filters out “inorganic activity” and artificial inflation in transaction data. It shows that over 90% of stablecoin transactions are automated. This dashboard monitors prominent stablecoins like USDT, USDC, USDP, and PYUSD, all backed by US dollar reserves.

Visa’s adjusted data highlights a significant drop in human-driven transactions. For example, the total value of stablecoin transactions on May 5 plummeted from the unadjusted $51.6 billion to just $4.6 billion after removing bot activities.

In response to debates over stablecoin usage, Visa’s head of crypto, Cuy Sheffield, clarified  that most on-chain activities stem from automated programs crucial to DeFi but different from regular financial transactions.

Stablecoins/btc volume
Credit: usa.visa.com

He said:

“For instance, developers can create automated bot programs that perform activities such as stablecoin arbitrage, liquidity provision, and market making, among others. These activities are vital for sustaining the growing decentralized finance (DeFi) ecosystem. However, the on-chain transactions resulting from interactions with these automated programs don’t resemble settlement in the traditional sense.”

ETH “Ultrasound Money” Shift Limits Appeal, Says Markus Thielen

Veteran analyst Markus Thielen told CCN that, despite Ethereum’s previous role as a major driver in the crypto market, its current weak fundamentals are hindering broader fiat investment in crypto, partly because of its high correlation with Bitcoin.

He highlighted that during the 2020/2021 cycle, Ethereum aimed to replace traditional banking with innovations like NFTs. These could have driven wider adoption, but developers were too slow to respond to challenges such as high gas prices and scalability issues.

He said:

“We can see where Ethereum is going next.”

ETH next
Credit: 10xresearch.co

These issues have since pushed most activity to Layer 2 solutions. Ethereum’s recent decision to focus on becoming “ultrasound money” has made it akin to a fixed-income investment, with the only real activity being in staking.

Furthermore, Ethereum has lost ground in the market to Tron, which now hosts more Tether. Additionally, Ethereum’s issuance has become inflationary. This means high yields are now available on-chain from other sources.

Stablecoin Bill to Open Doors for Institutional Blockchain Innovation

Andrew O’Neill, Managing Director & Co-Chair of S&P Global’s Digital Assets Research Lab, shared insights with CCN on the bipartisan Lummis-Gillibrand Payment Stablecoin Act introduced on April 17, 2024. The Act aims to create a solid legislative and regulatory foundation to boost confidence in stablecoins, speed up their adoption by institutions, enable banks to issue stablecoins, and streamline digital custody services.

Key aspects of the proposal include

  • Allowing non-bank entities registered with the Federal Reserve to issue stablecoins up to $10 billion.
  • Letting existing issuers continue operations during a transitional period.
  • Imposing a ban on algorithmic stablecoins.
  • Mandating stringent reserve requirements, regular disclosures, and quick redemption processes.

The proposal also includes provisions for handling insolvency among stablecoin issuers and clarifying custody asset reporting.

Why it Matters:

Stablecoins offer potential increased efficiency and enhanced security in settlements, particularly through the tokenization of financial assets and issuance of digital bonds. For instance, Blackrock’s BUIDL fund uses the Ethereum blockchain and USDC stablecoin, providing around-the-clock and instant redemption of share tokens.

Looking Ahead:

The passage of this bill could invite more banks to participate in the stablecoin market. It could offer them a competitive edge, especially as the cap on issuance for non-banking entities is set at $10 billion. This regulation may not significantly affect stablecoins already under stringent oversight. It could, however, potentially decrease Tether’s dominance, especially since it would not qualify as a permitted payment stablecoin under the new guidelines. The act also opens the door for more providers to offer digital asset custody services by lifting certain SEC requirements.

The Bottom Line

If passed, the bill is expected to propel new developments, particularly in digital bond issuance and tokenization. Meanwhile, it could also potentially diminishing Tether’s prominence in the global stablecoin market. It could also help create opportunities for US banks to issue stablecoins themselves.

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