Stagnation of stablecoin growth in the US market

Despite record-high cryptocurrency trading volumes in recent years, the US market has faced several challenges over the past year, one of which is the trend of stablecoin trading activities gradually shifting away from US-regulated platforms. According to a research report published by the blockchain analysis firm Chainalysis, this trend may reflect the barriers faced by stablecoins and digital assets in the context of slow regulatory progress in the US.

Proportion of stablecoins inflowing into US-regulated exchanges decreased in 2024

As of 2023, the trading volume share of stablecoins on compliant exchanges in the US has been steadily rising, in line with the growth of stablecoin adoption globally. However, in 2024, this trend began to reverse, as shown in the figure.

Proportion of stablecoins inflowing into US-regulated and non-US-regulated exchanges

This shift reflects a relative decline in stablecoin usage in the US market, due to a surge in stablecoin adoption in emerging and global markets, while growth in the US market is comparatively slow. As a result, more stablecoin trading is occurring on non-US regulated exchanges, indicating that the global demand for stablecoins is growing faster than in the US.

Stablecoin activities in non-US markets are growing faster

As shown in the figure, trading volumes of stablecoins have increased in both US-regulated and non-US-regulated exchanges, but the growth rate is more pronounced in non-US markets. This figure does not imply a significant decline in US market participation, but rather shows that the influence of stablecoins is rapidly expanding in emerging markets and non-US jurisdictions.

This figure shows the growth in stablecoin value received by US and non-US regulated exchanges. US regulation is incomplete, and EU MiCA regulations are seizing opportunities in the stablecoin market.

A Circle spokesperson pointed out that the current lack of clear regulatory frameworks in the US allows other financial centers (such as the EU, UAE, Singapore, and Hong Kong) to leverage more attractive regulatory frameworks to attract stablecoin projects. It was also mentioned that 'Europe, through MiCA regulations, has successfully achieved a goal that the US has yet to accomplish: providing legal and regulatory clarity for the entire digital asset market.'

Introduction to MiCA regulations

(Crypto Asset Market Regulation) (MiCA) will come into effect in June 2024, providing a regulatory foundation for stablecoins in the EU.

The MiCA framework officially came into effect for stablecoin issuers in June, requiring them to obtain an electronic money institution (EMI) license in at least one EU member state in order to operate legally across the 27 member countries. An EMI license is a type of financial license that allows the holder to issue electronic money, prepaid cards, and mobile payment tools. Reports indicate that this regulation aims to protect users while promoting innovation in the cryptocurrency sector.

Can US stablecoins replicate the success of Eurodollars?

The uncertainty surrounding stablecoin regulation is similar to the past situation of the 'Eurodollar' market.

The 'Eurodollar' market refers to dollar deposits held in financial institutions outside the United States, which are not subject to direct US regulation. Due to its relatively small initial scale, this market did not attract the attention of US policymakers, inadvertently promoting the internationalization of the dollar and solidifying its status as a global reserve currency.

However, the current regulatory situation for stablecoins is different. The lack of clear regulatory mechanisms has led to a gradual shift of stablecoin development overseas. If the US continues to stagnate in regulation, stablecoins may not be able to solidify the dollar's global position like the 'Eurodollar' did, and may even be benchmarked against other fiat currencies. This would not only cause the US to miss out on economic activities related to stablecoins but could also weaken the dollar's influence and authority in global finance and on-chain commerce.

Current developments in US stablecoin legislation

Although the US faces challenges in the stablecoin sector, it has not made no progress at all. Circle pointed out that the stablecoin bill promoted by the House Financial Services Committee in July 2023 may provide the necessary regulatory clarity for the US market to remain competitive. They urge Congress to pass this bill based on bipartisan cooperation and establish clear anti-money laundering (AML) and counter-terrorism financing (CFT) obligations for stablecoin issuers. This is crucial for maintaining the influence of US stablecoins in the global market.

This article outlines how the MiCA regulatory framework lays the groundwork for regulation in Europe, with threats to US stablecoin regulation first emerging in Chain News ABMedia.