With the rising stablecoin market primarily consisting of USD stablecoins, there is an emerging belief that non-USD stablecoins can follow their success. However, I disagree with this view, contending that non-USD stablecoins are constrained in their potential. In this article, I will explain my rationale for the limited prospects of non-USD stablecoins.

In the course of this article, I will start by providing a definition of non-USD stablecoins. Subsequently, I will analyze the current state of non-USD stablecoins and explore potential use cases. Finally, I will delve into the reasons underpinning the dominance of USD stablecoins and draw comparisons with their non-USD counterparts.

What is Non-USD Stablecoins?

Non-USD stablecoins are basically stablecoins that are not backed by USD. These can be any asset, but mostly, Gold-backed stablecoins or other currency-backed stablecoins such as Euro or Yen consist of this category.

The current state of Non-USD Stablecoins

As of writing, the market cap of several stablecoins are as follows:

1. USD Stablecoins - $121,420,369,009

2. Gold-backed Stablecoins - $1,012,764,172

3. Euro Stablecoins - $446,939,485

4. TL Stablecoins - $22,226,740

5. JPY Stablecoins - $14,100,270

6. CNY Stablecoins - 2,842,649

As can be seen, compared to USD stablecoins, other types of stablecoins have not gained significant traction until now. The USD stablecoins capture more than 99% of the market, and there is no sign of a trend change. The reason for the lack of growth of non-USD stablecoins can be attributed to several factors, including a lack of liquidity across exchanges, a lack of regulatory clarity, cold start problems, and a lack of use cases.

However, it should be noted that every type of stablecoin should be analyzed separately since each of them has its unique characteristics.

When looking at gold-backed stablecoins, we can observe that their market capitalization is higher than that of other currency-backed stablecoins. This can be attributed to the widespread use of gold as a store of value across the world, which may explain its faster adoption compared to other currency-backed stablecoins.

Moreover, it is also crucial to note that Euro stablecoins have a market share of almost half a billion, which cannot be disregarded. The emergence of new players in the Euro stablecoin space, such as Tether and Circle, has possibly had a positive impact. The rise of FX trading in DeFi can also serve as a catalyst for the growth of Euro stablecoins.

On the other hand, it is clear that stablecoins from emerging markets like TL (Turkish Lira), JPY (Japanese Yen), and CNY (Chinese Yuan) have not gained significant traction and do not capture a meaningful market share.

The Reasons Behind the Dominance of USD Stablecoins

Before claiming that non-USD stablecoins will grow and challenge the supremacy of USD stablecoins, it is necessary to look at the reasons for the USD dominance in the stablecoin market.

1. a) DeFi Ecosystem

   1. Limited Non-USD Stablecoin Use Cases: Non-USD stablecoins, while gaining traction, often lack the versatility and broad acceptance of USD-backed stablecoins, limiting their utility in decentralized finance (DeFi) applications.

   2. Liquidity Challenges: Non-USD stablecoins often suffer from liquidity constraints, making them less attractive for DeFi participants seeking ample liquidity for their transactions and investments.

   b) Global Trends

   1. Hyperinflation and Devaluation: Economic instability and hyperinflation in emerging markets drive heightened demand for the USD, which is perceived as a safe haven and store of value during times of currency devaluation.

   2. Dollarization: A growing trend of dollarization is evident in emerging markets, driven by the aforementioned factors. Local populations and businesses increasingly prefer holding and transacting in USD due to its stability.

   c) Macroeconomics

   1. Historical Legacy: The sustained dominance of the United States Dollar (USD) is deeply rooted in its historical role as a reliable and stable currency, particularly after World War II. This legacy has established trust among nations and institutions, reinforcing its prominence.

   2. Global Reserve Currency: The USD's status as the world's primary reserve currency is a cornerstone of its supremacy. Central banks across the globe hold significant USD reserves, enhancing their credibility and liquidity.

   3. Medium of Exchange: The widespread use of the USD as a medium of exchange for international transactions simplifies cross-border trade and investment, reducing transaction costs and uncertainty.

   4. Global Trade: Despite efforts to diversify currency options, USD remains the dominant currency for global trade. Many commodities, including oil, are priced and traded in USD, solidifying its position.

   5. Remittances: The USD's preference for remittances stems from its accessibility and recognition, facilitating the flow of funds across borders with relative ease.

   6. Real-World Assets: A multitude of tangible assets such as real estate, commodities, and financial instruments are priced and transacted in USD, further entrenching its role in global finance.

   7. Financial Dependency: The international financial system heavily relies on the USD for various financial products, including debt instruments, derivatives, and foreign exchange markets.

In conclusion, the continued dominance of USD and USD stablecoins is underpinned by a combination of historical trust, its status as a global reserve currency, and its extensive use in international trade and finance. Additionally, challenges faced by non-USD stablecoins and the global trends of economic instability further cement the USD's enduring relevance in the financial landscape. As such, it is reasonable to expect that this dominance will persist for the foreseeable future due to the robust and long-lasting factors supporting it.

The Lack of Demand for Non-USD Stablecoins

As stated, there are several important reasons that create demand for USD stablecoins. However, compared to USD stablecoins, we do not see such a demand for non-USD stablecoins. There are two main reasons for that: access to local currencies and lack of use cases of non-USD stablecoins.

A key reason why USD stablecoins are in high demand compared to non-USD stablecoins is that they make it easy for people in emerging markets or other countries to use and exchange US dollars.

However, it is important to point out the distinct nature of non-USD stablecoins. Consider, for instance, an individual in Japan or Turkey. These individuals, by virtue of their geographical location, have direct access to their native currencies, the Japanese Yen and Turkish Lira, respectively. Consequently, the necessity for a stablecoin denominated in their local currency is markedly diminished. These stablecoins, in their native countries, often lack a distinct utility beyond that of credit cards. This observation also applies when considering USD stablecoins within the US. However, it is essential to recognize that the primary demand for USD stablecoins predominantly comes from emerging markets. Conversely, the demand for non-USD stablecoins is considerably less pronounced, given the absence of analogous economic dynamics and associated use cases.

The disparity in demand between USD stablecoins and non-USD stablecoins can be attributed to the breadth of their respective use cases. The US dollar enjoys a crucial role across various domains, encompassing global trade, financial markets, remittance channels, and its widespread acceptance as a global medium of exchange and a reserve currency.

The preeminence of the US dollar in international trade, as well as its central role in the world's financial infrastructure, renders USD stablecoins indispensable for facilitating cross-border transactions and investments. Additionally, the global recognition of the US dollar as a reliable medium of exchange and a store of value elevates the demand for USD stablecoins on a global scale.

Conversely, non-USD stablecoins, primarily limited to localized usage, do not garner the same level of demand on the global stage due to their inability to replicate the expansive reach and versatility of the US dollar. Consequently, the demand for non-USD stablecoins remains constrained, in stark contrast to the widespread appeal and necessity of USD stablecoins in facilitating a broad spectrum of international financial activities.

Future Prospects

It is clear that the market cap of non-USD stablecoins will grow, especially this can apply for Euro stablecoins or Gold-backed stablecoins. Moreover, I believe that other commodities such as wheat, gold, oil, and cattle can be tokenized and stablecoins that are pegged to these commodities can be issued.

However, I don’t believe that most of the non-USD stablecoins such as Japanese Yen stablecoins or Turkish Lira stablecoins will have a huge impact on the market as there is no global demand for them.

When assessing the potential of non-USD stablecoins, it is imperative to recognize that stablecoins are designed to offer global accessibility and reach. However, the critical factor in their success depends on the presence of substantial global demand from investors who want to access those stablecoins. Without a strong demand, even the most advanced stablecoin technology may struggle to secure a customer base.