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The Promising Implications of Payments Adoption on Ethereum: A Data Perspective by IntoTheBlock

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Published on:
April 1, 2021

This week, IntoTheBlock looks at what has been going on with crypto adoption for the Ethereum network.

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Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry. 


This week, we dive into recent news from traditional companies facilitating crypto transactions. We analyze how these developments are expected to lead to broader adoption of blockchain technology and its significance particularly for Ethereum. 


The Promising Implications of Payments Adoption on Ethereum

Visa announced that it will be supporting payments on Ethereum through the USDC stablecoin. The credit card behemoth already completed its first USDC transaction and will remove the need to convert crypto into fiat for payments. This alone is expected to drive substantial demand for USDC as it facilitates crypto transactions through a more stable medium of exchange. 


Stablecoins have already captured significant momentum, surpassing $1 trillion in transactions in 2020 alone. Crypto has become increasingly reliant on stablecoins as the most liquid trading pairs are now denominated in stablecoins and a significant portion of activity in decentralized finance (DeFi) and non-fungible tokens (NFTs) taking place through these. 


USDC in particular has grown remarkably in the last two years. Daily transaction volume for USDC settled on Ethereum went from an average of under $20 million in March 2019 to nearly $3.8 billion per day in March 2021. 


transusd
As of Mar. 31, 2021 using IntoTheBlock’s USDC network indicators


This feat has been achieved with most, if not all, of the activity coming directly from the crypto space. With the advent of Visa moving to support USDC transactions, stablecoin transactions are poised to expand beyond cryptocurrency circles. Being able to easily transact in stablecoins in the real world incentivizes demand for crypto assets and protocols as it removes points of friction, such as having to cash out and withdraw to a bank account.  


Similarly, Tether published an attestation confirming it has $35 billion worth of assets backing USDT, the largest stablecoin. This push towards greater transparency should also lead to greater adoption as users may become more comfortable as fears of it lacking the necessary reserves settle down. 


One of the biggest beneficiaries from both of these news is Ethereum. The smart contract platform settles the majority of stablecoin volume, which requires its native Ether token to pay for fees on its blockchain. 


Furthermore, Ether holders stand to gain from stablecoin adoption with its upcoming EIP 1559 upgrade.  For those unfamiliar with EIP 1559, it proposes a new fee structure for Ethereum transactions through which a portion, known as the basefee, is burnt inversely to transaction activity. 


EIP 1559 could effectively reduce Ether’s supply as transactions grow. Therefore, growing adoption of stablecoins is likely to result in Ether becoming deflationary. Ethereum researcher Justin Drake classifies this transition in Ethereum’s issuance as Ether becoming ultra sound money

soundmoney
Source: Justin Drake Twitter


With EIP 1559 set to be implemented in July, Ether holders could soon benefit from all the transaction activity taking place in its blockchain. Despite the current high fees, the number of transactions taking place on Ethereum already averages over 1.2 million per day.


#oftransactions
As of Mar. 31, 2021 using IntoTheBlock’s Ethereum network indicators


Finally, PayPal announced it will soon allow U.S. users to checkout with crypto. This allows merchants to accept crypto for payments and seamlessly convert it into US dollars. The initial release will support Bitcoin, Ether, Bitcoin Cash and Litecoin for payments at its network of 29 million merchants. Needless to say, this should also spur adoption for these crypto-assets beyond speculation. 


Overall, support from institutions like PayPal and Visa is making it easier to use crypto. As stablecoins become increasingly legitimized, with even federally chartered banks allowed to use and issue them, the long-time promise for crypto mainstream adoption is finally looking closer. 


Ethereum in particular stands to gain from the recent news. Its upcoming EIP 1559 should create deflationary pressure for Ether and allow it to benefit from its burgeoning NFT and DeFi ecosystem. Ultimately, this aligns interests from Ethereum users and Ether holders, with broader adoption theoretically pushing prices higher due to decreasing supply. 


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Author(s)

Lucas Outumuro

I'm a senior analyst at IntoTheBlock, where I actively research crypto and analyze key indicators for growing areas such as DeFi.

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