While altcoins are still struggling to compete with the ascent that Bitcoin has known in recent months, the Stablecoins have crossed a new record by exceeding for the first time the $ 250 billion in capitalization. All analysts now agree that a clarification of regulation on these cryptocurrencies is necessary to reach new levels.
In short
- Stablecoins are now occupying a central place in decentralized finance.
- They are available in several categories, each having its specificities.
- Their rapid expansion requires an urgent need for regulatory clarifications.
Stablecoins, new champions of decentralized finance
Eleven years after the appearance of Tether's USDT on Omni, the first layer 2 solution on the Bitcoin network, the Stablecoins crossed the CAP $ 250 billion in capitalizationthanks in particular to the growth of Real World Asset and their use in international transfers. These stablecoins are mainly present on Ethereum (50 % of the Stablecoins market), to be invested in decentralized finance applications, and on a tron (30 %) for monetary transfers. With such capitalization, they become with Bitcoin an essential engine on the Crypto market.
Crossing the $ 250 billion mark marks a turning point. Stablecoins are no longer experimental, they are essential.
Hank Huang, CEO of Kronos Research
Stablecoins backed by the dollar largely dominate this market, with a capitalization of 245 billion out of a total of 250 billion, including 153 billion for the USDT and 60 billion for the USDC. We note here that neither the euro nor the yuan manage to make a real place in this market in Stablecoins. The European Union and China have chosen the route of Central Bank digital currencies, which partly explains this withdrawal from the dollar.
The different categories of stablecoins
To understand the need to clarify the regulation on stablecoins, we must return to the different categories of these cryptocurrency. We can distinguish centralized stablecoins (for example the USDT) and decentralized stablecoins (for example DAI). Centralized stables can take the course of the underlying assets (for example the dollar), thanks to reserves in dollars or treasure vouchers. The USDT of Tether and the USDC of Circle are the two stablecoins which dominate this category. This category requires the most regulation, as investors must be guaranteed that each digital unit is guaranteed by equivalent value in a reserve.
On the side of decentralized stablecoins, the question arises of the mechanism which ensures the stability of the price. The most used mechanism now is collateralization. Thus, Makerdao's DAI uses several cryptocurrencies to guarantee the stability of its price (ETH, BTC, but also the USDC). The other mechanism is an algorithmic model that was used by the terra. An algorithm stabilized its price by varying the amount of Luna according to the capitalization of the UST. However, this mechanism has been abandoned since the failure of the algorithm which caused more than 90 % the price of the UST.
The Usde de Ethena is a compromise between these two mechanisms. It ensures its stability by a neutral delta strategy. A short position compensates in the opposite direction the volatility of collateral assets. This mechanism keeps the capital to balance that guarantees its price.
Stablecoin growth requires clarification of regulation
Since his election, Donald Trump has clearly affirmed his refusal of a central bank digital currency. On the contrary, the promotion of the dollar will go through the growth of centralized stablecoins, which will need to constitute increasingly large reserves of dollars to guarantee the value of these crypto-active. The American Senate therefore formulated a legal framework for these assets with the Genius Act (Guiding and Establishing National Innovation for US Stablecoins). This text requires an annual audit of stablecoins and provisions for foreign issuers. Other regions of the world also set up regulations for these assets. Thus, Hong Kong set up a license on May 21 for companies wishing to issue a stablecoin.
These regulations will allow large finance companies to establish themselves in the long term in decentralized finance. For the moment, only Blackrock, through its Buidl tokenized fund, has settled in this new market in this new market. Other companies, such as JPMorgan or Bank of America, have already indicated that they had to release their own stablecoin soon. For the moment, the volume of decentralized exchanges is only equivalent to 25 % of the volume of trading in cryptocurrencies. Decentralized finance therefore has a very large margin of progression and the stablecoins issuers want to position themselves to recover the fruits of this growth.
Long neglected and considered a simple tool, stablecoins have become an essential element of the DEFI. Indispensable to invest in Real World Asset or to define the price of volatile cryptocurrencies, their growth remains for the moment one of the engines of the crypto market, even if the dynamics around Bitcoin DEFI is experiencing contrasting developments this year.
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