JPMorgan Chase & Co. (JPM) has projected that the stablecoin supply may reach between $500 billion and $600 billion by 2028, which is significantly lower than some optimistic forecasts of $2 trillion to $4 trillion.
The demand for stablecoins is still largely driven by developments in the crypto market rather than payments, according to the largest U.S. bank by assets.
JPMorgan reported that the stablecoin market has expanded by approximately $100 billion this year, now totaling around $308 billion, primarily driven by Tether’s USDT and Circle’s (CRCL) USDC.
Demand is chiefly fueled by crypto trading and collateral requirements within derivatives and decentralized finance (DeFi), with derivatives exchanges contributing about $20 billion in stablecoin holdings amid a rise in perpetual futures activities, the report indicated.
“Most of the stablecoin demand originates from their utilization as cash or collateral within the crypto ecosystem to support crypto trading, including derivatives trading and DeFi lending and borrowing,” stated analysts led by Nikolaos Panigirtzoglou in the report released on Wednesday.
Stablecoins are digital currencies linked to assets like fiat currencies or gold, but primarily tied to the U.S. dollar. They play a central role in the crypto economy, acting as payment channels and facilitating cross-border money transfers.
The analysts pointed out that while payments currently play a minor role, they could increase as more providers explore stablecoin-based solutions for international transactions.
However, the report emphasized that an expanded payment application does not necessarily require a significantly larger stablecoin supply, as the velocity at which tokens circulate could increase with deeper integration.
Moreover, banks and payment networks are taking steps to safeguard their roles in institutional transactions by developing tokenized deposits and other blockchain-related projects, while Central Bank Digital Currency (CBDC) initiatives might provide regulated alternatives that compete with private stablecoins, the report noted.
Read more: Stablecoin Adoption Is ‘Exploding’ — Here’s Why Wall Street Is Going All-In
