Ripple’s Stablecoin: a Competitor to USDT?

17 Apr 2024

A few days ago, Ripple (the company that issues XRP) announced its plans for a new USD-backed stablecoin.

In an interview, Ripple’s CEO Brad Garlinghouse said that the stablecoin would be launched this year. It will be backed by dollar deposits, short-term government bonds and cash equivalents.

The new stablecoin will be launched on XRP (no surprise) and ETH blockchains (no surprise; Ripple chose the “industry standard” and ignored direct competitors). Ripple will later announce which exchanges will list the new stablecoin.

The stablecoin market is rapidly growing amid rising interest for crypto markets. Tether (USDT) remains the main issuer of stablecoins with a market cap approaching $107 billion.

Circle’s USDC has started to recover from the blow dealt by the U.S. regional banks crisis in early 2023. Its market cap has already settled above the $32 billion level. Other competitors are far behind USDT and USDC.

Interestingly, PayPal’s stablecoin, which was launched back in August 2023, failed to gain traction despite the company’s large user base. Currently, PYUSD market cap does not exceed $200 million.

The key reason for the failure is the lack of a clear use case and strategy. It looks that PayPal’s user base was the only idea behind the creation of the company’s stablecoin.

Ripple’s stablecoin has better potential as the company understands crypto markets. However, the stablecoin must capture significant market share to be viable in the long term.

It should be noted that the new stablecoin would not be a direct competitor to USDT as it will be under strict control of U.S. regulators. Those who want to see that stablecoin’s reserves are fully inside the U.S. financial circuit choose the world’s second largest stablecoin, USDC. XRP must prove that its product is better than the established USDC.

Most likely, we’ll see more stablecoins launched this year. This trend is driven by two catalysts — high U.S. government bond yields (that’s how issuers make profits) and rising interest for crypto. However, there’s no threat to the dominance of USDT, which remains a unique product.