Financial technology companies Robinhood and Revolut are considering launching stablecoins to take a share of the $170 billion stablecoin market, betting that tighter regulations in Europe and other regions will lose out to leader Tether, according to a report by Bloomberg, citing people familiar with the matter.

Stablecoin market capitalization continues to increase, with Tether taking the lead

Financial technology companies Robinhood and Revolut are both trying to issue their own stablecoins, but the companies still have the option not to proceed, people familiar with the matter said. They spoke on condition of anonymity discussing confidential information.

Startups have been trying to compete with Tether’s USDT for years. The market value of stablecoins has reached US$173.1 billion, USDT accounts for 65%, with a market value of nearly US$120 billion. The second-ranked USDC has a market capitalization of $36.3 billion, and other stablecoins are much smaller.

But Tether faces greater uncertainty as the European Union prepares to fully adopt broad cryptocurrency rules by the end of the year. Under MiCA, cryptocurrency exchanges operating in the EU may be forced to delist stablecoins issued by issuers such as Tether that do not have the appropriate licenses.

Circle Internet Financial Ltd., the issuer of USDC, has become a MiCA-compliant stablecoin issuer and officially opened its USDC and EURC services to European commercial customers. The company said in January it had confidentially filed for an initial public offering (IPO) in the United States.

(Circle becomes the first MiCA-compliant stablecoin merchant, will Tether’s leading position be shaken?)

Stablecoin reserves are highly profitable

As U.S. dollar interest rates are still hovering at high levels, stablecoin issuers have poured dollars into the U.S. bond market, earning nearly 5% risk-free profits. Unlike banks that have to pay interest to depositors, it seems to be a business that is sure to make money without losing money. In its second quarter, Tether reported record profits of $5.2 billion in the first half of 2024, while employing just 100 people.

(The Federal Reserve is about to cut interest rates, and Tether’s quarterly revenue may be reduced by 200 million mg. How will the leading stablecoin respond?)

Thomas Eichenberger, chief product officer of Swiss crypto bank Sygnum, said in an interview with Bloomberg:

Many businesses focus on companies like Circle and Tether and the data they publish. This sounds like a wonderful business model that many people might want to copy.

There are also early signs that stablecoins, a tool for moving funds to and from cryptocurrency exchanges, are becoming more widely used for payments. Russian companies, for example, use USDT to pay for imports, allowing them to bypass a banking system hobbled by sanctions.

A survey this month by Castle Island Ventures, Brevan Howard Digital and Artemis showed that nearly half of cryptocurrency users in emerging markets such as Brazil, Indonesia, Turkey, India and Nigeria are purchasing stablecoins to convert local currencies into U.S. dollars. Nearly 40% of people use stablecoins to pay for goods or services, while more than a fifth receive or are paid in such tokens.

Everyone wants to join the stablecoin market

Nuri Chang, head of product at BitGo, said that as more issuers enter the market, the result may be "a high degree of fragmentation of stablecoins." Different financial applications might run their own stablecoins, and swapping between tokens would become so seamless that end users wouldn't even notice, he said.

Christian Catalini, founder of the MIT Cryptoeconomics Laboratory, believes:

Major retail brands, neobanks and exchanges will all consider issuance. The same goes for credit card companies, and people are gradually realizing that Tether and Circle have huge influence in this market.

Payments giant PayPal launched the stablecoin PYUSD last year in an attempt to solidify its dominance in digital payments. But its circulating supply, which peaked at just over $1 billion in August, now stands at just $700 million, ranking it sixth in the stablecoin market.

MiCA is on the road, and banks are also joining the ranks of stablecoin issuance

EU rules governing stablecoins have entered into force during the first phase of MiCA, which was launched at the end of June. Exchanges such as OKX, Uphold and Bitstamp have delisted the Tether stablecoin from the EU region.

Societe Generale SA launched its own euro stablecoin EURCV last year, becoming the first large bank in Europe to provide stablecoins to investors. Its subsidiary SG-Forge has obtained the electronic currency agency (Electronic Money Agency) from the French regulatory agency ACPR. EMI) license and restructured its EURCV into an Electronic Money Token (EMT) to comply with EU MiCA regulations, expanding its stablecoin into the retail market.

The addition of large banks also symbolizes the mainstreaming and compliance of stablecoins. The stablecoin market will first be reshaped by MiCA in Europe, and may later expand to the world.

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