Companies from Robinhood Markets Inc. to Revolut Ltd. are considering launching stablecoins, betting that stricter regulations in Europe and elsewhere will finally loosen Tether Holdings Ltd.’s grip on the rapidly expanding $170 billion digital-asset sector.
Robinhood and Revolut, two of the most valuable fintechs, have both been kicking the tires on issuing their own stablecoins, but the firms could still opt not to proceed, said people with knowledge of the matter. They asked not to be identified discussing confidential information.
Upstarts have tried to compete with Tether’s USDT for years, with most having little to show for it. Circulation of the stablecoin — a type of token designed to maintain a constant value — has swelled to almost $120 billion, accounting for more than two-thirds of the market by that measure. Runner-up USDC stands at $36 billion, according to CoinGecko data, and other stablecoins are far smaller.
But with the European Union poised to fully adopt wide-ranging crypto rules at the end of this year, Tether faces heightened uncertainty. Under regulations known as MiCA, crypto exchanges operating in the EU may be forced to delist stablecoins from issuers like Tether who don’t have the appropriate permits.
Circle Internet Financial Ltd., the issuer of USDC, already has the required EU license. The company said in January that it had confidentially filed for a US initial public offering.
Tether Chief Executive Officer Paolo Ardoino has repeatedly expressed concern that EU rules present too many risks if a stablecoin issuer were to face mass redemptions. The company, which doesn’t have an e-money license in the bloc, is working on a “technology-based solution” to serve the EU market, Ardoino said in an emailed statement.
A Robinhood spokesperson said it has “no imminent plans to launch this offering.” A Revolut spokesperson said the company plans to “further grow” its crypto product suite, without confirming a future stablecoin.
Profitable Reserves
The financial incentives are massive. As the value of USDT in circulation rose in tandem with interest rates, the profit Tether earned mainly from the reserves backing it hit $5.2 billion in the first half of 2024, according to Tether. The company said it had roughly 100 employees at the end of that period.
“Many businesses have looked at the likes of Circle and Tether and the figures they’ve posted,” said Thomas Eichenberger, chief product officer at Swiss crypto bank Sygnum, in an interview. “It sounded like a beautiful business model, and there are many out there that might want to replicate that.”
There are also early signs that stablecoins — until now mainly a tool for moving funds onto and off crypto exchanges — are becoming more widely used for payments. USDT, for instance, has been used by Russian companies to pay for imports, allowing them to bypass a banking system hobbled by sanctions.
In emerging markets like Brazil, Indonesia, Turkey, India and Nigeria, almost half of crypto users are buying stablecoins to save their money in dollars, according to a survey this month from Castle Island Ventures, Brevan Howard Digital and Artemis. Nearly 40% use stablecoins to pay for goods or services, while over one-fifth receive or pay salaries in such tokens.
Everyone Wants In
As more issuers push into the market, the result may be “hyper-fragmentation of stablecoins,” according to Nuri Chang, head of product at BitGo, which announced its own token in September. Different financial apps may run their own stablecoins, and swapping between tokens would become so seamless that end users wouldn’t even notice, he said.
“Mainstream retail brands, neobanks and exchanges will think about issuing. The credit-card companies, too,” said Christian Catalini, founder of the MIT Cryptoeconomics Lab. “There’s dawning realization that Tether and Circle have massive power in this market.”
Over the years, USDT has been resilient in the face of various challengers. PayPal Holdings Inc. launched a stablecoin last year, seeking to cement its dominance in digital payments. The token’s circulation peaked at just over $1 billion in August but has since dropped some 30%, data from CoinGecko show.
Rules governing stablecoins in the EU are already in effect under the first phase of MiCA, which kicked in at the end of June. They require stablecoin issuers to have an electronic-money license in an EU member state and hold up to two-thirds of the assets backing their token at independent banks, among other criteria.
An implementation period of up to 18 months for regulation of all other crypto platforms in the EU, from exchanges to funds, will begin at the end of 2024. The two-phased approach has allowed for a compliance grey area to develop, in which stablecoin rules are live but exchanges don’t necessarily need to remove non-compliant tokens before their own MiCA licenses are granted.
Exchanges including OKX, Uphold and Bitstamp have already moved to partially delist stablecoins from Tether in the EU ahead of the looming deadline. Those platforms are now at “a competitive disadvantage,” said Chris Harmse, chief business officer of crypto payments business BVNK, which intends to keep Tether on its EU platform until the regulatory picture becomes more clear.
SG-Forge, owned by Societe Generale SA, is among those seeing an opening. The firm said in July it received an e-money license, and has expanded its stablecoin into the retail market.
“We think the stablecoin market — definitely in Europe but probably also worldwide — will be reshaped by MiCA,” Stenger said. “There is a very strong requirement now to have a clean product.”
