Companies from Robinhood Markets Inc. to Revolut Inc. are investing in stablecoins, betting that tighter regulation in Europe and elsewhere will eventually loosen Tether Holdings’ grip on the rapidly expanding $170 billion digital asset sector. We are considering the publication of .
Robinhood and Revolut, two of the most valuable fintech companies, are both fully committed to issuing their own stablecoins, but the companies may still choose not to proceed. People familiar with the matter said. They asked not to be identified to discuss confidential information.
Startups have been trying to compete with Tether’s USDT for years, but most have had little success. Stablecoins (a type of token designed to maintain a constant value) have grown to nearly $120 billion in circulation, accounting for more than two-thirds of the market. According to data from CoinGecko, runner-up USDC is worth $36 billion, while other stablecoins are much smaller.
But Tether faces growing uncertainty as the European Union looks set to fully implement far-reaching crypto rules at the end of this year. Under the regulation, known as MiCA, crypto exchanges operating within the EU could be forced to delist stablecoins from issuers like Tether that do not have the proper permissions.
Circle Internet Financial Ltd., the issuer of USDC, has already obtained the necessary EU license. In January, the company announced that it had confidentially filed for an initial public offering (IPO) in the United States.
Tether CEO Paolo Ardoino has repeatedly expressed concern that the EU rules pose significant risks if stablecoin issuers face mass redemptions. The company does not have an e-money license in the region, but is working on “technology-based solutions” to serve the EU market, Ardoino said in an emailed statement.
A Robinhood spokesperson said there are “no immediate plans to launch this service.” A Revolut spokesperson said the company plans to “further expand” its cryptocurrency product suite, without confirming future stablecoins.
Profitable reserves
The financial incentives are huge. Tether said that as the value of USDT in circulation rose in tandem with interest rates, Tether’s profits, primarily from its underlying reserves, reached $5.2 billion in the first half of 2024. The company said it had approximately 100 employees at the end of that period.
“A lot of companies are looking at companies like Circle and Tether and the numbers they put out,” Thomas Eichenberger, chief product officer at Swiss crypto bank Sygnum, said in an interview. “It seemed like a beautiful business model, and I think a lot of people would want to copy it.”
There are also early signs that stablecoins (up until now primarily a tool for moving funds to and from crypto exchanges) will become widely used for payments. USDT, for example, is used by Russian companies to pay for imports, allowing them to bypass a banking system hampered by sanctions.
In emerging markets such as Brazil, Indonesia, Turkey, India and Nigeria, nearly half of crypto users use stablecoins to save money in dollars, according to a study conducted this month by Castle Island Ventures, Brevan Howard Digital and Artemis. It is said that they are purchasing. Nearly 40% use stablecoins to pay for goods and services, and more than a fifth receive or pay a salary in such tokens.
everyone wants to participate
As more issuers enter the market, the result will be “hyper-fragmentation of stablecoins,” according to Nuri Chan, head of product at BitGo, which announced its own token in September. It is said that there is a possibility. He said various financial apps could potentially run their own stablecoins, and the exchange between tokens would be so seamless that end users wouldn’t even notice.
“Mainstream retail brands, neobanks and exchanges will consider issuing one, as will credit card companies,” said Christian Catalini, founder of the MIT Institute for Cryptoeconomics. “There is a growing recognition that Tether and Circle have significant power in this market.”
Over the years, USDT has been resilient in the face of various challengers. PayPal Holdings launched a stablecoin last year in an effort to solidify its dominance in digital payments. Token circulation peaked at just over $1 billion in August, but has since declined by about 30%, according to CoinGecko data.
Rules governing stablecoins in the EU are already in force under the first phase of MiCA, which started at the end of June. Stablecoin issuers are required to obtain an e-money license in an EU member state and hold up to two-thirds of the assets backing their tokens in an independent bank.
The enforcement period of up to 18 months for all other cryptocurrency platforms in the EU, from exchanges to funds, will begin at the end of 2024. A two-tiered approach has enabled the development of compliance gray areas. While the rules are in effect, exchanges are not necessarily required to remove non-compliant tokens before being granted their own MiCA license.
Exchanges such as OKX, Uphold, and Bitstamp are already moving to partially delist stablecoins from Tether in the EU ahead of the looming deadline. Chris Harms, chief business officer of crypto payments business BVNK, said these platforms are currently at a “competitive disadvantage” and will keep Tether on an EU platform until the regulatory situation becomes clearer. It is said that it is his intention.
SG Forge, owned by Société Générale SA, is one company that sees potential. The company announced in July that it had obtained an e-money license and expanded its stablecoin into the retail market.
“We think the stablecoin market will definitely be reshaped by MiCA, not just in Europe, but probably around the world,” Stenger said. “There is a huge push right now to have a clean product.”
