Amid the widely applauded launch of a stablecoin by PayPal this week, signaling the entrance of a prominent American payment giant into the blockchain arena, the overall supply of this asset category has experienced a prolonged decline spanning more than a year.
Recent data underscores a steady reduction in the aggregate supply of stablecoins since the midpoint of 2022. The trajectory continued into 2023, witnessing a decline of approximately 12%. The total supply dwindled from $139 billion at the outset of the year to $122 billion by August.
Market analysts are now anticipating a potential reversal of this downturn, particularly given PayPal’s newfound involvement in the sector. The belief is that PayPal’s active engagement could validate the utility of stablecoins, not only elucidating their functional value but also compelling traditional financial institutions to embrace these digital assets due to competitive pressures. Mark Lurie, CEO of Shipyard Software, expressed this sentiment, emphasizing that if PayPal effectively demonstrates the practical application of stablecoins, it could trigger a significant wave of adoption.
Concurrently, regulatory frameworks seem to be positioning themselves to accommodate an expansion in stablecoin utilization. In a communiqué directed at state member banks with interest in “issuing, holding, or transacting in dollar tokens to facilitate payments,” the U.S. Federal Reserve stipulated the necessity for banks to establish robust protocols to manage liquidity and mitigate the risks of illicit financial activities.
The central bank has taken a proactive stance, unveiling the “Novel Activities Supervision Program” to bolster oversight over banks engaged in stablecoin activities. This program encompasses a comprehensive supervision enhancement across all financial institutions under its purview. The focus is extended to include cryptocurrency, distributed ledger technology, and novel partnerships between nonbank entities and financial service providers, aimed at delivering technologically-driven financial solutions to consumers.
Simultaneously, the UK Treasury has joined this regulatory trend. They have released a consultation response detailing updated propositions for a regulatory framework overseeing systemic stablecoins. The framework delineates the collaborative supervisory approach between the Bank of England and the Financial Conduct Authority, orchestrating stablecoin issuance and usage oversight in tandem.
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