Stablecoins, with their fixed value proposition, offer a safer haven for investors and users amidst the tumultuous fluctuations of the broader cryptocurrency market. Their utility spans from facilitating seamless cross-border transactions to serving as collateral within DeFi protocols. Consequently, stablecoins like Tether (USDT), USD Coin (USDC), and DAI have experienced considerable adoption, playing a pivotal role in both the crypto trading sphere and various DeFi applications.
While the industry widely celebrated the recent introduction of a stablecoin by PayPal, marking the entry of a prominent American payment company into the cryptocurrency space, the supply of these kind of assets has been on a continuous decline for more than a year.
Data sourced from The Block reveals that the aggregate supply of these assets began diminishing around the middle of 2022. Throughout 2023, this decline has amounted to approximately 12%, causing the supply to dwindle from $139 billion at the commencement of the year to $122 billion by August. There is a growing belief among certain analysts that this downward trajectory could be on the cusp of transformation, especially in light of PayPal’s foray into the stablecoin sector.
Mark Lurie, the CEO of Shipyard Software, noted that if PayPal manages to effectively demonstrate the practicality of these assets, it would not only underscore their undeniable usefulness but also compel other traditional financial institutions to consider adopting stablecoins in order to remain competitive. Lurie stated, “Should PayPal exhibit a sincere commitment to employing these assets, it holds the potential to significantly accelerate the adoption of stablecoins, thereby acting as a substantial catalyst.”
In essence, while the recent introduction of a stablecoin by PayPal was met with excitement and enthusiasm within the industry, the broader context of decreasing these assets supply over the past year remains an intriguing aspect. The decline, as evidenced by data from The Block, contrasts with the positive sentiment surrounding PayPal’s entrance to the stablecoin market. Nevertheless, experts like Mark Lurie speculate that this scenario might experience a notable shift, particularly if PayPal’s involvement showcases the tangible benefits of these assets, which in turn could stimulate a more widespread adoption across the financial landscape.
Meanwhile, regulatory frameworks appear to be positioning themselves in anticipation of an increased utilization of stablecoins.
In a communication directed at state member banks expressing interest in engaging with “issuing, holding, or conducting transactions involving dollar tokens for the purpose of facilitating payments,” the U.S. Federal Reserve has stipulated that banks must showcase appropriate protocols for addressing liquidity and the potential risks associated with illicit financial activities.
Demystifying Stablecoin Reports
Recently, the central bank unveiled fresh guidelines to bolster its oversight of banks participating in stablecoin-related activities. This initiative, termed the “Novel Activities Supervision Program,” signifies the Federal Reserve’s intention to heighten its monitoring of all banking entities under its purview, with a specific focus on areas like cryptocurrencies, distributed ledger technology, and “technology-centric collaborations with nonbank entities aimed at providing financial services to clientele.” Simultaneously, the UK Treasury has also issued its response to a consultation, updating proposals for a regulatory framework governing systemic stablecoins.
The outlined framework delineates the collaborative supervision approach by the Bank of England and the Financial Conduct Authority concerning the issuance and utilization of stablecoins.