Exciting developments are underway in the stablecoin landscape as major fintech firms, including Robinhood Markets Inc. and Revolut Ltd., explore the possibility of launching their own stablecoins. This surge of interest comes at a time when stricter regulations in Europe and beyond may loosen Tether Holdings Ltd.’s long-held dominance over the rapidly expanding digital asset sector, currently valued at around $170 billion.
Both Robinhood and Revolut are reportedly assessing the feasibility of issuing their own stablecoins, although sources indicate that they have not made a final decision. This cautious approach reflects the complexities of entering a market where competition has proven fierce. Over the years, numerous upstart companies have attempted to challenge Tether’s USDT, but most have struggled to gain traction. As it stands, USDT commands a circulation of nearly $120 billion, accounting for more than two-thirds of the stablecoin market. The next largest competitor, USDC, trails significantly at around $36 billion, with other stablecoins remaining far smaller.
As the European Union prepares to implement comprehensive crypto regulations at the end of this year, Tether faces new uncertainties. The regulations, known as MiCA, may force crypto exchanges operating in the EU to delist stablecoins from issuers like Tether that lack the appropriate permits. Circle Internet Financial Ltd., which issues USDC, has already secured the necessary EU license and is gearing up for a potential initial public offering in the United States.
Tether’s CEO, Paolo Ardoino, has raised concerns about the risks associated with EU regulations, particularly regarding mass redemptions. Without an e-money license in the EU, Tether is exploring a “technology-based solution” to navigate this regulatory landscape.
Despite the caution exhibited by Robinhood and Revolut, the financial incentives for entering the stablecoin market are significant. As the circulation of USDT has increased alongside rising interest rates, Tether has reported a staggering profit of $5.2 billion in the first half of 2024, primarily from the reserves backing its stablecoin. The company has a workforce of around 100 employees, suggesting a lean operation with potentially high returns.
This financial allure is not lost on other companies, as many firms are now keenly observing the success of established players like Tether and Circle. Thomas Eichenberger, chief product officer at Swiss crypto bank Sygnum, noted the appeal of the stablecoin business model, stating that other companies are eager to replicate it.
Moreover, stablecoins are evolving beyond their initial role as tools for transferring funds onto and off exchanges. There are signs of increasing adoption for payments, with USDT reportedly being used by Russian companies to facilitate imports, effectively circumventing a banking system hampered by sanctions. In emerging markets such as Brazil, Indonesia, Turkey, India, and Nigeria, a recent survey found that almost half of crypto users are purchasing stablecoins to preserve their savings in dollars. Additionally, nearly 40% utilise stablecoins for goods and services, and over one-fifth receive or pay salaries in such tokens.
As the market expands, a potential “hyper-fragmentation” of stablecoins could occur. Nuri Chang, head of product at BitGo, commented that various financial apps may introduce their own stablecoins, leading to seamless swapping between different tokens without users even noticing. This indicates a shift towards a more diversified and potentially confusing stablecoin ecosystem.
Mainstream retail brands, neobanks, and even credit card companies are beginning to consider their entry into the stablecoin space. Christian Catalini, founder of the MIT Cryptoeconomics Lab, emphasised that the substantial market power held by Tether and Circle has sparked a widespread realisation among these entities.
Historically, USDT has demonstrated resilience against numerous competitors. PayPal Holdings Inc. launched its own stablecoin last year in a bid to solidify its position in digital payments, but despite an initial peak in circulation of over $1 billion, the token has since seen a decline of around 30%.
In the EU, regulations governing stablecoins are already in effect, requiring issuers to obtain an electronic money license in an EU member state and hold a significant portion of the assets backing their token at independent banks. The phased implementation of the MiCA regulations, which begins at the end of 2024, has created a compliance grey area. While stablecoin rules are active, exchanges are not yet compelled to remove non-compliant tokens until they receive their own MiCA licenses.
Exchanges such as OKX, Uphold, and Bitstamp have already begun to partially delist Tether’s stablecoins from their platforms in the EU ahead of the impending regulatory deadline. Chris Harmse, chief business officer of crypto payments firm BVNK, indicated that this preemptive action could place these exchanges at a competitive disadvantage. BVNK, on the other hand, plans to continue supporting Tether until the regulatory landscape becomes clearer.
The situation has also attracted the attention of companies like SG-Forge, a subsidiary of Societe Generale SA. The firm recently obtained an e-money license and is expanding its stablecoin offerings into the retail market. Stenger, a representative from SG-Forge, remarked on the transformative potential of MiCA, asserting that the stablecoin market will likely undergo significant changes both in Europe and globally.
As Robinhood, Revolut, and other fintech companies weigh their options, the stablecoin landscape remains dynamic and filled with opportunities. With Tether’s grip on the market facing new challenges and an influx of potential new entrants, the next chapter in the world of stablecoins promises to be intriguing.
