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Visa Reveals High Level of Inorganic Activity in Stablecoin Transactions

Overview of stablecoin transaction nature

Visa's new report indicates that a vast majority of stablecoin transactions on popular blockchains are automated, suggesting limited human participation in these digital currency movements.

Key takeaways:

  • Visa and Allium’s research shows that 90% of stablecoin transactions on networks like Ethereum, Tron, and Solana are driven by smart contracts, not humans.
  • The automated nature of these transactions highlights a fundamental difference from traditional payment transactions, impacting how these platforms are viewed in comparison to established financial networks.

Visa, in collaboration with enterprise blockchain data provider Allium, has unveiled findings that suggest a significant portion of stablecoin transactions on major blockchain networks such as Ethereum, Tron, and Solana are not initiated by humans. According to their research, around 90% of these transactions are classified as "inorganic activity," primarily driven by smart contracts involved in functions like arbitrage, liquidity provision, and market making.

Details from Visa and Allium's data dashboard

To provide more clarity and accuracy in transaction reporting, Visa and Allium have developed a new data dashboard. This tool is designed to filter out inorganic activity and other practices that might artificially inflate transaction volumes. For instance, on a recent reporting day, Visa noted that the unadjusted figure for stablecoin transactions amounted to $51.6 billion. However, after adjusting for inorganic activities, this figure drastically reduced to just $4.6 billion, highlighting the extent of automated transactions within the ecosystem.

The dashboard currently tracks several major stablecoins, including Tether’s USDT, Circle’s USDC, Paxos’s USDP, and PayPal’s PYUSD, all pegged 1:1 to the U.S. dollar and backed by cash or cash-equivalent reserves like U.S. treasury bonds. The aim is to provide a more transparent view of the actual human engagement in stablecoin transactions.

Visa’s analysis was partly prompted by discussions in the crypto community about stablecoins potentially rivaling traditional settlement networks. Cuy Sheffield, Visa’s head of crypto, elaborated in a blog post that transactions initiated by automated bots in the decentralized finance (DeFi) ecosystem are fundamentally different from those processed by conventional payment systems. These automated transactions, while critical for the liquidity and functionality of DeFi platforms, do not equate to traditional financial settlements.

In addition to these insights, Visa reported significant growth in the use of USDC. From September 2023 to the end of the year, USDC's involvement in stablecoin transactions surged from 23% to over 50%, peaking at 60% in February. This marked increase underscores the rising reliance on USDC within the stablecoin market.