Citigroup: Blockchain technology may usher in a wave of applications similar to the "ChatGPT moment"

Investment banking giant Citigroup said regulatory changes could be a catalyst for the mass adoption of stablecoins and blockchain technology in 2025.

"Driven by regulatory changes, 2025 is expected to be the 'ChatGPT moment' for blockchain applications in the financial and public sectors," Citigroup's team of financial analysts said in an April 23 report.

Stablecoin market capitalization is expected to reach a high of $3.7 trillion in 2030, compared with $1.6 trillion in the baseline scenario, driven by increasing regulatory support and increased adoption by financial institutions.

"Clarity in U.S. regulatory policy could be a major catalyst for increased stablecoin acceptance, which would drive wider integration of stablecoins, especially blockchain technology, into the existing financial system," Citi said in the report. "Positive factors of regulatory support and the deep integration of digital assets in traditional financial institutions are creating favorable conditions for the growth of stablecoin use." "

After the Trump administration took office earlier this year, it has taken a friendly attitude towards cryptocurrencies, and members of Congress are weighing stablecoin legislation, including the GENIUS Act, which aims to regulate U.S. stablecoins and ensure their legal use in the payment field.

According to the report, the establishment of a U.S. stablecoin regulatory framework will also support demand for risk-free U.S. dollar assets both inside and outside the United States.

"Stablecoin issuers must purchase U.S. Treasuries or similar low-risk assets as a safe underlying collateral for each stablecoin," said Citi. "

"By 2030, the size of U.S. Treasuries held by stablecoin issuers may exceed that of any single jurisdiction currently. "

The US dollar will continue to dominate the stablecoin market

Citi predicts that stablecoin supply will continue to be denominated in US dollars in the future, while non-US countries may promote their own currencies or central bank digital currencies (CBDCs).

In April, the market value of stablecoins exceeded US$230 billion, an increase of 54% from last year, with Tether (USDT) and USDC accounting for 90% of the market.

Citi pointed out: "While the dominance of the US dollar may evolve over time and the euro or other currencies may be promoted by national regulations, many non-US policymakers may view stablecoins as a tool of US dollar hegemony."

"The geopolitical situation remains fluid. If the world continues to move towards multipolarity, policymakers in China and Europe may actively promote central bank digital currencies (CBDCs) or stablecoins issued in their own currencies. "

However, the market still faces some challenges. If "adoption and integration challenges persist," the stablecoin market value may stabilize at around $500 billion.

Unpegging has also been flagged as a potential problem, according to Citi. There were 1,900 unpegging events in 2023, including a major unpegging event for USDC after the collapse of Silicon Valley Bank.

The agency said: "Major unpegging events could suppress crypto market liquidity, trigger automatic liquidations, impair the ability of trading platforms to meet redemption requests, and could have broader contagion effects on the financial system."