A new study by digital asset data provider Kaiko has found that Silvergate’s decision to shut down its instant payments network will likely boost stablecoin adoption among investors in crypto trading.
Last week, Silvergate Capital announced the closure of its payments network, SEN, which crypto exchanges and investors used to move large amounts of U.S. dollars. The decision came after the crypto-friendly bank revealed in a regulatory filing that it could soon be “less than well capitalized.”
Investors Could Turn to Stablecoin Issuers
Shortly after the announcement, crypto firms, including Coinbase and Kraken, started abandoning the bank. While Silvergate’s issues may affect crypto entities since access to the global banking system has always been a major challenge for them, Kaiko believes the “death of SEN” will help stablecoins “become even more ubiquitous among traders.”
The study predicts that rather than depositing their dollars with an exchange using banking rails such as Silvergate’s SEN, investors will deposit them with a stablecoin issuer to receive stable tokens before moving them to an exchange.
Nonetheless, Kaiko stated that the stablecoin issuers will still need access to a crypto bank, “so the risk is now further concentrated.”
Stablecoins Gain Market Share Against the USD
With the rise of stablecoins, the number of new fiat trading pairs listed by crypto exchanges has declined globally. Last year, the number of new dollar pairs on exchanges dropped from 400 to 326, according to Kaiko.
The report finds that since the FTX implosion, the USD market share has declined consistently relative to USDT and USDC.
“For now, the dollar and dollar-pegged stablecoins remain the foundation of the crypto-economy, but growing complications with USD payment rails could upend this trend,” the report said.
Stablecoins Continue to Gain Popularity
Meanwhile, stablecoins are becoming very popular among traders as they help reduce volatility in the crypto market. A recent report revealed that stablecoins trading volume hit a new record high in 2022 at $7.4 trillion from $6 trillion in the year prior.
The stablecoin market volume has surpassed every major credit card provider, including Mastercard, American Express, and Discover, and was only trailing Visa.