The wave of stablecoins is coming: An analysis of the new round of market competition and investment opportunities.

Stablecoins in the crypto assets ecosystem are a type of digital asset that is pegged to fiat currency (usually the US dollar) and essentially consists of a set of standardized smart contracts. They are neither fiat currency nor central bank digital currency (CBDC).

The former U.S. government opposed CBDCs, believing they could strengthen government power and infringe on personal freedoms. In contrast, they had a friendly attitude towards stablecoins, believing that stablecoins help solidify the dominance of the dollar. In contrast, the EU and China support CBDCs but have a stricter regulatory stance towards stablecoins.

As the regulatory framework for stablecoins in the United States becomes clearer, the stablecoin network will be more deeply integrated into the existing dollar system. This signals that the stablecoin sector is about to experience an unprecedented level of intense market competition. Some large financial institutions have already begun to enter this field.

The main functions of stablecoins include value storage, transaction medium, and payment tool. These functions essentially stem from the fiat currencies they are pegged to. However, the rapid confirmation and programmable features of stablecoins make their efficiency in cross-border circulation and settlement far exceed that of traditional SWIFT systems. Currently, the annual settlement total of stablecoins is already twice that of a well-known payment network.

During the first wave of stablecoins from 2018 to 2019, project teams primarily focused on licenses and asset sides, neglecting liquidity network effects and user experience, which led to the failure of most projects. In the upcoming second wave, due to the imminent clarity of regulatory frameworks, project teams have shifted their focus to asset scale, liquidity network effects, and user experience.

In addition to stablecoin projects launched by some large financial institutions, a large number of new stablecoin innovation projects are expected to emerge.

For ordinary investors, this wave of stablecoins mainly offers two types of investment opportunities: first, participating in yield farming of decentralized CDP stablecoin protocols, and second, focusing on stablecoin infrastructure projects. The latter is relatively simple and may be more suitable for most investors.

Stablecoin infrastructure projects are mainly divided into two categories: one category includes projects that provide liquidity support, while the other category consists of projects that develop new application scenarios for stablecoins. These projects may play an important role in the future stablecoin ecosystem.