Stablecoins Market Surpasses $235 Billion, USD-Backed Dominate with 90% Share

Stablecoins have become a significant component of both the cryptocurrency world and the global financial system, with a market that has surpassed $235 billion. This growth indicates a strong belief in the future of these assets. Currently, USD-backed stablecoins such as USDT and USDC dominate the market, holding about 90% of the share. Other top stablecoins, including USDe and PYUSD, are also dollar-denominated. In contrast, euro-based stablecoins have a much smaller market share. The primary reason for this disparity is liquidity.

Liquidity is the most crucial factor determining whether a stablecoin can gain widespread use. Without deep and sustainable liquidity, no stablecoin can achieve mass traction, regardless of regulatory clarity. Euro-backed stablecoins, for example, have existed for years but remain barely used due to liquidity challenges. USD-backed stablecoins like USDT and USDC have deep liquidity, high trading volumes, and extensive integration across centralized and decentralized finance (CeFi/DeFi) platforms. In contrast, euro and other non-USD stablecoins lack the necessary market mechanisms to sustain them, resulting in fewer trading pairs, users, and financial instruments.

One of the key reasons for this liquidity gap is the lack of financial incentive for centralized market makers to provide liquidity for euro stablecoins. It is simply not profitable enough for them, leading them to prioritize other assets. This economic issue means that if market makers cannot make a decent return on providing liquidity for these assets, they will not allocate capital towards them. Regulation could play a role in making non-USD stablecoins more attractive. For instance, the introduction of MiCA regulations in the EU has paved the way for compliant EUR-backed stablecoins such as EURC, making them a viable alternative for integrating with traditional finance (TradFi).

However, regulation alone is not the deciding factor. EUR-backed stablecoins existed before MiCA, and it is still unclear whether the framework will ultimately help or hinder their adoption. MiCA could act as a restriction on USD-backed stablecoins in Europe, potentially giving euro stablecoins an unfair advantage rather than making them genuinely competitive on their own merits. Regulation cannot solve the fundamental issue of liquidity. Without it, no regulatory framework can make a stablecoin viable enough for broad use. The market capitalization of USDT and USDC stands at $141 billion and $56 billion, respectively, while euro-based stablecoins like EURC or EURS barely go above $100 million. This gap directly impacts their usability, resulting in fewer trading pairs, fewer DeFi integrations, and less incentive for traders and institutional players to adopt them.

One possible solution lies in developing more effective liquidity algorithms for non-USD stablecoins. Reliance on professional market makers has proven ineffective, so a new approach is necessary, with mechanisms that can ensure strong liquidity without relying entirely on those parties. A more effective approach would be to establish deep liquidity pools between USD and non-USD stablecoins. This is the most practical way to ensure smooth conversions, as it would directly address the core issue. However, it requires refining automated market maker (AMM) algorithms to make liquidity provision more efficient and attractive for providers. What matters most is how much liquidity providers can earn. If the incentives are there, liquidity will improve, and adoption will naturally follow. This isn’t just about attracting more capital — it’s about restructuring liquidity provision in a way that ensures long-term, sustainable profits.

Without improvements to the infrastructure, euro stablecoins and their counterparts will continue to lag behind, despite their potential. Stablecoins are only as strong as their liquidity. The key is building models that make providing liquidity profitable — because once the financial incentives align, everything else will fall into place. Looking ahead, non-USD stablecoins could gain a competitive edge in specific use cases, such as cross-border remittances, on-chain forex trading, and decentralized lending. Businesses that operate globally but need to manage cash flows in multiple currencies could benefit from borrowing non-USD stablecoins while keeping their treasuries in USD. Additionally, liquidity pools that facilitate stablecoin swaps between different fiat denominations could serve as stores of value, potentially laying the foundation for a more decentralized global financial system.