Competition for Stablecoin Leadership Intensifies
The race for supremacy in the stablecoin sector is entering a new phase, as key players like Tether, which issues the leading stablecoin, and Circle, its closest competitor, are preparing for a transformed landscape. This shift comes amidst increasing regulatory scrutiny, notably from the European Union’s Markets in Crypto Assets (MiCA) regulations and legislative efforts in the United States. According to Fireblocks, a company specializing in digital asset security and custody, this phase will see banks—both large and small—as well as established payment companies exploring optimal methods to incorporate these digital tokens into their operations.
The Rise of Stablecoins
Stablecoins, digital tokens that are primarily pegged to the U.S. dollar, have rapidly gained traction in the financial ecosystem. Tether’s USDT currently leads the market with a capitalization approaching $145 billion, while Circle’s USDC boasts over $60 billion in circulation. Circle is also contemplating a public offering on the New York Stock Exchange. Analysts from Standard Chartered predict that the stablecoin market could swell to $2 trillion by the close of 2028. “We anticipate banks will start issuing stablecoins, particularly in light of MiCA,” stated Ran Goldi, Fireblocks’ Senior Vice President of Payments. He noted that financial institutions, particularly fintechs such as Robinhood, Ripple, and Revolut, are entering the stablecoin arena, with an expectation of around 50 new stablecoins emerging by year-end.
Phases of Competition
Goldi highlighted that the industry has experienced two distinct phases thus far. The initial phase was characterized by USDC competing with Paxos, a regulated trading firm that had partnered with Binance to launch BUSD. However, due to regulatory challenges, Paxos had to discontinue BUSD, allowing Circle to emerge victorious in that contest. Recently, Paxos has formed the USDG consortium, which is gaining influence and could play a significant role moving forward. The second phase has involved a rivalry between Circle and Tether. “USDC aimed to surpass USDT, but faced challenges following the collapse of Silicon Valley Bank, which made acceptance of USDC more difficult, especially outside the U.S. In contrast, USDT has experienced significant growth. I believe USDT will maintain its position as the leading dollar-pegged stablecoin internationally, while Circle will need to continue its competitive efforts,” Goldi explained.
USDC’s Regulatory Edge
It is important to note that USDC operates under MiCA regulations, granting it access to a market of approximately 450 million people across 27 EU nations, while USDT does not have this advantage.
The Growth of International Transactions
Stablecoins have become a vital tool for transferring funds between volatile cryptocurrencies, effectively addressing the challenges posed by the limited availability of fiat on and off ramps. The rise of dollar-pegged stablecoins has coincided with the growth of decentralized finance (DeFi). Historically, the landscape of payment service providers (PSPs) has evolved significantly; initially, these services were utilized for settling bills with cryptocurrencies, followed by a wave of business-to-business PSPs such as Bridge, which was recently acquired by Stripe, and others like Zero Hash and Conduit. “Some of these PSPs may not be widely recognized, yet they are handling billions in stablecoin transactions, primarily facilitating payments between businesses,” Goldi noted. He observed that stablecoins accounted for less than 20% of Fireblocks’ transaction volume in 2020, but this figure surged to approximately 54% last year.
Practical Applications of Stablecoins
To illustrate a typical scenario, consider an importer in Brazil who needs to pay an exporter in Turkey or Singapore. The importer converts Brazilian reals into stablecoins and either sends the funds directly to the exporter or converts them into the local currency for payment. Some banks have already recognized the potential for stablecoins in cross-border transactions; institutions like Braza Bank in Brazil, BTG Bank, and DBS in Singapore are providing business accounts that support stablecoin transactions. Others are still evaluating the most beneficial applications for their services.
Goldi mentioned, “Numerous banks have approached us, inquiring whether they should serve as on/off ramps, hold reserves, or consider issuing their own stablecoins. There are various avenues through which banks can profit from stablecoins, including credit, on/off ramps, and foreign exchange services.” Based on these discussions, he believes that many banks are drafting strategic plans that will likely be submitted by the end of the current quarter.
Looking ahead, it will be fascinating to observe whether banks will develop proprietary solutions or partner with firms like BNY Mellon, which serves banking institutions, or vendors such as Fireblocks. Goldi predicts that major tier-1 banks, including JPMorgan, Citibank, and Morgan Stanley, may opt to create their own technology, while smaller tier-2 banks might prefer to utilize hosted technology solutions. “Given their traditional nature, banks tend to proceed cautiously, so they are likely aiming to finalize these plans by year-end and possibly implement them in 2026,” Goldi added.
