In recent months, a flurry of companies, including tech and crypto giants, as well as the US state of Wyoming, have jumped on the stablecoin bandwagon, eager to capitalise on the recovering digital assets market.
Among these are Latin American e-commerce leader Mercado Libre, crypto business Paxos International, and financial services players like Banking Circle.
Notably, the state of Wyoming plans to launch its own stablecoin by early 2025, with ambitions of integrating it into everyday payments.
While the stablecoin market has swelled to $169 billion in circulation, experts remain divided on whether these new entrants can carve out space in a sector dominated by titans like Tether and Circle.
The Stablecoin Surge
Stablecoins have become an essential part of the digital asset ecosystem, offering a form of digital currency that is typically pegged one-to-one with a reserve currency like the US dollar or more recently the Euro.
This makes them an attractive alternative for crypto traders looking to move assets between different cryptocurrencies efficiently as stablecoins are designed to minimise the volatility associated with traditional cryptocurrencies like Bitcoin and Ethereum, providing a reliable medium for crypto trades.
With Bitcoin and Ethereum both reaching record highs earlier this year, it’s no surprise that companies are eager to enter the stablecoin space.
Ripple, known for its blockchain-based payment solutions, and PayPal were among the first to roll out their own versions of stablecoins.
Now, others are following suit. The lure? Potential profits from holding billions in reserve assets like US Treasuries.
Tether, which holds a market share of 70%, earned a net profit of $5.2 billion in just H1 2023 by earning interest on its reserves, thanks to elevated rates of over 5%.
For many new entrants, these margins represent a lucrative opportunity.
New Entrants Face Challenges
However, the competition is fierce. Despite the excitement around these new launches, there is growing scepticism about whether many of these new stablecoins will gain traction.
Critics argue that most of these tokens lack significant differentiators that would entice users away from Tether and Circle, which are deeply entrenched in the market and widely used by crypto traders.
“The reality is that many of these new stablecoins are going to burn out,” a senior crypto executive noted. “Tether is in a league of its own, and many of these new entrants just can’t compete at that level.”
Wyoming’s stablecoin, scheduled for a 2025 debut, aims to bring stablecoins into everyday consumer use, such as purchasing a cup of coffee.
Proponents argue that this could be a game-changer, but historically, stablecoins have seen limited adoption for retail transactions.
The real demand still stems from crypto trading and as an alternative store of value, especially in markets with currency volatility, such as Brazil, where Mercado Libre’s stablecoin aims to protect users from exchange rate fluctuations.
Regulation as a Competitive Edge
One way newer entrants are trying to differentiate themselves is by promoting their commitment to regulatory compliance.
IDA, a Hong Kong-based digital asset firm, raised $6 million to fund the development of a fully regulated stablecoin in Hong Kong.
Similarly, Luxembourg-based Banking Circle and Irish payments firm DECTA are emphasising the regulatory safeguards surrounding their newly launched euro-denominated stablecoins.
Etay Katz, a partner at law firm Ashurst in London, highlighted that regulation will be essential for stablecoins to gain broader acceptance, especially among major financial institutions.
“No significant bank is going to take on the risk of dealing with an unregulated or unknown stablecoin issuer,” he explained.
For stablecoins to truly become a part of the mainstream payments landscape, developers will need to secure regulatory approvals in multiple jurisdictions.
Looking Ahead
While stablecoins have firmly established themselves as a key component of the crypto trading ecosystem, their use in everyday payments today still remains limited.
Many of the new launches appear to be betting on the long-term potential for stablecoins to revolutionise cross-border transactions, particularly in regions with volatile currencies.
But until they can distinguish themselves from incumbents like Tether and Circle, and secure regulatory approval, their long-term survival is far from guaranteed.
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