Thanks to MiCa, Europe will become the first major jurisdiction in the world in June 2024 to introduce regulation for stablecoins. In said month, the first provisions of the Law focused on stable currencies will come into force. In general, stablecoins or stable currencies face a 2024 full of challenges, most focused on the area of ​​legislation, which will be key to their growth.

Europe stablecoin regulation

MiCa establishes that all stablecoins must be supervised by the European Banking Authority (EBA). The presence of the issuer in the EU will be a prerequisite for any issue. Likewise, a limit of 200 million euros in daily transactions is established for stablecoins. MiCA also states that stablecoins will have to maintain reserves to cover all claims and must be legally and operationally segregated and isolated.

In the United States, the Clarity for Stable Payments Act has been waiting to be approved by the House of Representatives since the middle of last year. For now, what has emerged is that PayPal has received a subpoena from the US Securities and Exchange Commission related to the stablecoin it launched last year.

From the company Circle, issuer of the stablecoin #USDC $USDC , they trust that 2024 will be the year in which regulations for stablecoins are enacted in the United States. In an interview with CNBC within the framework of the World Economic Forum in Davos, Jeremy Allaire, CEO of Circle, classified stablecoins as the main application of blockchain technology. In the case of the United Kingdom, the country has not regulated stablecoins either, but it is clear that they are very useful new technologies for storing, exchanging money and facilitating cheaper and faster payments.

Payment facilitators

In recent years, stablecoins have gained ground as a fundamental component for the cryptocurrency industry. Well, as facilitators of payments, liquidity, cross-border transfers and remittances or as a bridge to decentralized finance (DeFi) or fiat money. During 2023, the market capitalization of stablecoins fell by just over 5%, from 136 billion to 129 billion, according to annual data published by CoinGecko.

Tether Leadership

#Tether (USDT) begins 2024 as the main stablecoin in the crypto market, with a capitalization of more than $95.1 billion, an all-time high for the stablecoin. In 2023, it went from $66 billion to $95 billion today. Brazil, Argentina or Venezuela have been key to the growth of USDT in 2023.

USDC

USDC, a stablecoin linked to the US dollar from Circle and Coinbase, faced a 45% market capitalization reduction in 2023. It went from more than $43,000 at the beginning of 2023 to just over $25.5 billion today, according to CoinMarketCap. USDC experienced its most difficult moments in March 2023, when it lost its peg with the dollar. The reason for the mismatch was the bankruptcy of Silicon Valley Bank, where Circle, the USDC issuer, had more than $10 billion deposited. Since then, although it managed to regain parity with the dollar, its market capitalization has not recovered.

Circle focused its efforts last year on boosting the use of USDC, expanding its availability natively to more than a dozen blockchains, such as Polygon, NEAR, Optimism, and Base. It also promoted its usefulness for payments, such as its integration with Visa, Mercado Pago in Chile or Shopify, through Solana Pay.

Despite the drop in capitalization, in 2024 the number of wallets with at least 10 USDC increased by 59% to more than 2.7 million wallets. The company led by Allaire recently filed its Initial Public Offering (IPO) in the United States, with a draft registration statement on Form S-1 before the Securities and Exchange Commission (SEC), who will review the process for approval.

Goodbye BUSD

The definitive elimination of BUSD, a stablecoin associated with the Binance cryptocurrency exchange, and issued by Paxos, will become a reality in 2024. In February of last year, Paxos announced that it will not issue new units of BUSD. The decision is related to a regulatory enforcement move with the New York Department of Financial Services (NYDFS). There was also a lawsuit from the SEC, which classified BUSD as a security. Next February was set as the support deadline for BUSD conversions to other assets by Binance and Paxos. The current capitalization of BUSD barely reaches $315 million. In February 2023 it had more than $13 billion.

Stablecoin de PayPal (PYUSD)

#PayPal formally entered the stablecoin business in 2023, with the launch of a stablecoin pegged to the US dollar, PayPal USD (PYUSD) and issued on the Ethereum blockchain. #PYUSD is backed by dollar deposits, US Treasury bonds and cash equivalents. PayPal's stablecoin has not been a huge success in its first six months of life. The reasons have been its low usefulness, low adoption in the Web3 environment or the characteristics of the PayPal ecosystem and its commissions.

However, 2024 could mean a turning point for the PayPal stablecoin. The capitalization of the stablecoin went from $159 million at the beginning of the year to nearly $300 million today, according to data from CoinMarketCap. Although it is almost double, it still has a long way to go to reach the Top 5 stablecoins by market capitalization, occupied by TrueUSD (TUSD) with $1.8 billion.

PayPal in DeFi

However, PayPal's strength as a company could work in its favor. Stablecoins play a crucial role in the DeFi ecosystem, so the integration of PYUSD and the associated incentives within this environment would be a game changer for the acceptance of said stablecoin.

This is already starting to happen in 2024 with initiatives such as the launch of a liquidity pool for PYUSD on the DeFi protocol, Curve Finance, as well as the intention to integrate the stablecoin into the decentralized lending platform, Aave, one of the main actors in the DeFi sector. Both initiatives are led by Trident, an entity hired by Paxos to increase PYUSD liquidity.

Backed by the dollar

Regarding the currencies with which stablecoins are backed, the dollar wins by a landslide. Euro-backed stablecoins represent a tiny part of the market. According to data from Defillama, stablecoins backed by dollars exceed $133.4 billion. Those linked to the euro barely exceed $288 million. These figures could change with the entry into force of the MiCA regulation in Europe, by encouraging the use of #Stablecoins linked to the euro

Source: Observatorioblockchain.com