3 Crucial Numbers Every Investor Must Watch in the Stablecoin Game

Stablecoins promise safety—but the devil’s in the data. Miss these metrics, and you’re flying blind.

1. The Peg Patrol: That "1:1" promise? It’s a tightrope walk. Track deviation percentages like a hawk—because when stablecoins wobble, portfolios crumble.

2. Reserve Runway: Cash and bonds backing your coin? Cute. Real players scrutinize reserve composition reports like a Wall Street auditor on espresso.

3. Velocity Vortex: High transactions can signal adoption—or a pump-and-dump masquerading as utility. Follow the money, not the hype.

Remember: In crypto, even 'stable' is a speculative bet—just ask the guys still bagholding TerraUSD between martinis.

$250 billion

The most important number to focus on is the size of the stablecoin industry. Five years ago, the size of the stablecoin industry was just $20 billion. Today, it's $250 billion. And, according to Bessent, the stablecoin industry could surpass $2 trillion within just a few years. That's truly exponential growth.

Right now, stablecoins account for roughly 6% of the entire crypto market, which is valued at nearly $4 trillion. And that means a growing number of stablecoins now rank among the largest cryptocurrencies in the world.

Image source: Getty Images.

(USDT -0.00%), for example, has a $164 billion market cap and ranks as the fourth-largest cryptocurrency.(USDC -0.01%) has a market cap of $64 billion and ranks as the seventh-largest cryptocurrency. Other cryptocurrencies ranking among the top 25 include(DAI -0.01%) and(USDE -0.00%).

200

As new stablecoin research from The Motley Fool makes clear, the top two stablecoins -- Tether and USDC -- account for nearly 90% of the market cap of the stablecoin industry. However, there are now more than 200 stablecoins.

The most popular stablecoins are those that are pegged 1-to-1 to the U.S. dollar. However, those are just the "vanilla" stablecoins, and the ones that the Treasury Department is focused on. There are more exotic flavors to choose from. That's because a stablecoin can be pegged to any fiat currency in the world, not just the dollar. For example, CoinGecko currently tracks four stablecoins pegged to the Japanese yen and more than 20 stablecoins pegged to the euro.

Moreover, stablecoin issuers outside of the U.S. have plenty of options for how to back those stablecoins. There are fiat-backed stablecoins, gold-backed stablecoins, crypto-backed stablecoins, and even stablecoins backed by sophisticated algorithms. The choice of backing matters tremendously. When it comes time to exchange your stablecoin, you want to make sure that you get back your $1.

What's particularly fascinating about the new stablecoin legislation (the Genius Act) is that it opens the door for many more stablecoin issuers to emerge, including a wide range of non-banks. Your favorite retailer might soon be offering one. Your favorite Silicon Valley tech giant might soon be offering one, also.

My prediction is that we're about to see a vast Cambrian explosion of new stablecoins. Just as there are now thousands of different cryptocurrencies, there might soon be thousands of different stablecoins. Of course, buyer beware -- in the race to create new stablecoins, there are sure to be some real stinkers.

$13 billion

Being a stablecoin issuer is an immensely profitable business. In 2024, stablecoin giant Tether posted a profit of more than $13 billion.

In this year's "Big Ideas" report for Ark Invest, Cathie Wood highlighted just how staggering that number is. The only institutions in thethat generated more net income in the first half of 2024 were(BRK.A -1.27%),(JPM -2.43%),(BAC -3.50%), and(WFC -3.54%).

And Tether did it with fewer than 200 employees. By way of comparison, says Wood, JPMorgan Chase employs more than 300,000 people. As Wood points out, "Tether's financial performance is stunning, both absolutely and relatively." If you graph net income per employee for all the top financial institutions in the world, Tether stands out as the clear leader. Its business model is simply unmatched.

How to choose the right stablecoin for your portfolio?

Even though stablecoins have become an enormously profitable business, you won't become rich by investing in stablecoins directly. That's because stablecoins are designed to always trade for $1.

That's why I've always said that the best way to make money with stablecoins is to search out ways to invest in the issuers of the most profitable stablecoins. That way, you get exposure to the upside potential of the entire industry. If the entire industry is growing at an exponential rate, it's a good bet that the top stablecoin issuers will also be growing at an exponential rate.

For now, my top pick is(CRCL -8.40%), the issuer of the USDC stablecoin. The company went public on June 5 and is already up 130% since then. Until market leader Tether decides to go public, I can't think of a better pure play on the future growth of the stablecoin industry.