Even ardent supporters of XRP (XRP -1.31%) must be getting tired of waiting for its price to soar. XRP still trades around the $0.62 mark, almost exactly the same as on Jan. 1. Meanwhile, Bitcoin (BTC -1.56%) has blasted off into the stratosphere, reaching new all-time highs this year.
But XRP may have one more trick up its sleeve. Ripple, the company behind the XRP crypto token, recently announced plans to launch a new stablecoin for the XRP ecosystem. If successful, this new product launch could revive growth prospects for XRP and potentially send the value of the crypto token past the $1 mark.
Why a stablecoin matters for XRP
A stablecoin is a special type of cryptocurrency that is pegged 1-to-1 to a specific asset, typically the U.S. dollar. Unlike traditional cryptocurrencies, which can gyrate wildly in value, stablecoins are supposed to be, well, "stable." Regardless of what is going on in the market, they are always supposed to be worth $1. If they ever lose their peg, it means something has gone seriously wrong.
Image source: Getty Images.
Given this unique property, a stablecoin can act as a bridge between the world of traditional finance (which uses real-world dollars) and the world of blockchain finance (which uses digital dollars). Stablecoins help to convert real-world dollars into digital dollars so that they can be used on a blockchain. Often, they are used so seamlessly that you may not even realize that they are being used.
And that's where XRP comes into the picture. In theory, the new stablecoin should create new use cases for XRP, and those in turn, should help to drive a higher valuation. For example, XRP already powers a payment network from Ripple. As usage of the stablecoin increases, it could lead to more usage of this payment network, which could lead to more demand for XRP, which could help to push up its price.
A $150 billion market opportunity
Right now, stablecoins are a $150 billion industry. They are enormously important in getting mainstream financial players (such as banks) involved in the world of blockchain finance. If the new Ripple stablecoin is a big hit with these financial players, it would make everything that XRP does more attractive and more valuable.
Even if Ripple only gains a 10% market share of the $150 billion stablecoin industry, that's worth $15 billion. That's roughly half the value of XRP, which has a current market cap of about $34 billion. So it's easy to see how XRP could get a nice lift in value from just a modest gain in market share.
Gaining market share in a crowded market
The only problem is that the stablecoin industry is currently controlled by two behemoths -- Tether (USDT 0.02%) and USD Coin (USDC -0.00%). The market cap of Tether is $107 billion, and the market cap of USD Coin is $32.5 billion. Together, these two stablecoins account for about 95% of the total $150 billion market opportunity.
So Ripple has its work cut out for it. It must convince everyone currently using Tether and USD Coin to use its stablecoin instead. And the only way to do that, quite frankly, is to convince everyone that its stablecoin is 100% guaranteed to never lose its peg, while other stablecoins might. And, indeed, there have been multiple times over the past two years when Tether briefly lost its peg.
From my perspective, gaining market share is going to be a really tall task. Just ask PayPal (PYPL 1.49%), which launched a new stablecoin called PayPal USD last August. The total market cap of this stablecoin is still less than $200 million, and some of the initial enthusiasm surrounding it seems to have cooled considerably. Not to mention the fact that the Security and Exchange Commission (SEC) is taking a closer look to see if it might really be a security, not a cryptocurrency.
Will XRP hit $1 this year?
Unfortunately, XRP has been losing its relevance as a crypto token for several years now. Given that XRP remains mired in an ongoing lawsuit with the SEC, many financial institutions are hesitant about using it, and some have broken off partnerships entirely as they wait for things to sort themselves out.
While I certainly applaud Ripple for taking steps to boost the value of XRP (even if it's only indirectly), I'm not convinced that this new product launch is going to move the needle. The market seems to agree. Since Ripple announced its new stablecoin project in early April, the price of XRP has barely budged. As a result, I'm increasingly doubtful that XRP will cross the $1 threshold this year.
