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Stablecoins post triple-digit growth in 2020, but institutional rivals loom

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The supply of the Coinbase-backed stablecoin USD Coin (USDC) has grown by 250% since the start of 2020, including an 80% expansion in just the past two months.

After starting the year with a nearly $520 million market cap, USDC now ranks as the 16th-largest crypto asset with a $1.86 billion capitalization — beating out all other major stablecoins except for the $14.5 billion Tether (USDT) by at least four times.

Meanwhile, other stablecoins (most of which are pegged to the value of $1 US) have also seen significant growth this year, with DAI and Binance USD expanding by 970% and 800% respectively in 2020 so far.

Historic market cap of USDC, HUSD, PAX, BUSD, and DAI: CoinMetrics

However, the race is on for established stable tokens to consolidate market share before major financial institutions and corporations enter the fray with their own tokenized money.

On September 9, Fnality — a stablecoin project spanning 13 global banks that was spearheaded by UBS Group — predicted it will receive regulatory approval for its ‘UtilitySettlement Coin’ initiative by the second quarter of 2021.

The Fnality project has been in development for more than five years, and seeks to establish a network featuring tokenized US dollars, Japanese yen, Euros, Canadian dollars, and British pound sterling.

Existing stablecoins may also face stiff competition from Facebook’s Libra competition, which despite facing early regulatory push-back, appears to be slowly gaining favour among lawmakers.

In July, the US Office of the Comptroller of the Currency (OCC) granted permission to federally chartered banks to custody crypto assets, further opening the door to the mainstream acceptance of stablecoins.

Central bank digital currencies are also on the horizon in China, the US and Europe and have the potential to one day wipe out demand for crypto stablecoins. On September 10, European Central Bank (ECB) President Christine Lagarde announced that the ECB will soon deliver a verdict on whether the region is in need of a digitized Euro:

“The Eurosystem has so far not made a decision on whether to introduce a digital euro. But, like many other central banks around the world, we are exploring the benefits, risks and operational challenges of doing so.”

In May, the Liechtenstein-based Bank Frick began accepting deposits in USDC.



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Regulation

New York authorizes first Yen stablecoin operator in the US

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New York has given the first authorization to a stablecoin backed by the Japanese Yen to operate in the U.S.

Per a Dec. 29 announcement, the New York Department of Financial Services has granted Japanese firm GMO-Z.com a charter to handle U.S.D. and Yen-backed stablecoins in New York. 

Given New York’s status as a global center, the NYDFS is the most prominent state financial regulator in the U.S. It is also one of the most aggressive. A pass to operate in New York often opens up the rest of the country. 

GMO’s charter is as a limited liability trust company rather than a full bank, the principle difference being in authorization to handle deposits. While a stablecoin operator typically needs the ability to hold reserves of the pegged asset, GMO’s charter limits its rights to hold other kinds of deposits not central to its ability “to issue, administer, and redeem” its stablecoins. 

The right to issue such non-depository charters has been a bone of contention between state regulators like the NYDFS and national banking regulators in the U.S. 

GMO president and CEO Ken Nakamura said: “We’re breaking ground with our move to issue the first regulated JPY-pegged stablecoin, which many see as a safe haven asset.” 

The NYDFS recently made changes to its famous BitLicense, including a conditional format that buddies up newly licensed firms with existing licensees. The first conditional BitLicense went to PayPal, facilitating the launch of its new crypto services earlier this fall with the help of longstanding licensee Paxos.