The global financial landscape is witnessing a significant shift in stablecoin activity, with a marked departure from the U.S. market. Recent reports indicate that while the U.S. has historically been at the forefront of the stablecoin revolution, its dominance is waning.
According to a report by Chainalysis, North America, led predominantly by the U.S., accounted for an estimated $1.2 trillion in cryptocurrency value received on-chain between July 2022 and June 2023. This figure represents 24.4% of the global transaction activity during that period.
However, despite these impressive numbers, there has been a relative decline in North America’s stablecoin usage compared to other digital assets since February 2023. This decline saw stablecoins drop from 70.3% to 48.8% of North America’s on-chain transaction volume.
Several factors have contributed to this shift. The collapse of Silicon Valley Bank and other crypto-friendly banks such as Signature and Silvergate led to a temporary drop in the value of USDC in secondary markets. This, in turn, affected the confidence in stablecoins like Circle’s USDC. Additionally, the report highlighted that the majority of stablecoin inflows to the top 50 crypto services have transitioned from U.S. licensed services to non-U.S. licensed services.
This indicates that while U.S. entities initially played a pivotal role in legitimizing the stablecoin market, an increasing number of cryptocurrency users are now engaging in stablecoin-related activities through foreign-based trading platforms and issuers.
The implications of this shift are profound. The U.S. risks losing its regulatory oversight of the stablecoin market pegged to the U.S. dollar. Chainalysis data reveals that over 90% of stablecoin activity involves stablecoins pegged to the U.S. dollar. However, with the increasing activity through non-U.S. entities, the U.S. government’s ability to oversee and regulate this sector is diminishing.
This shift also has broader economic implications. Stablecoin transactions involving USD-backed stablecoins reached nearly $6.87 trillion in 2022, surpassing the transaction volumes of major financial players like Mastercard and PayPal. If the U.S. does not act promptly, it risks losing out on the benefits derived from the central role the USD plays in the global economy.
Regulatory challenges have also played a part in this shift. While there have been calls for comprehensive stablecoin regulation in the U.S., progress has been slow. Proposed bills like the Clarity for Payment Stablecoins Act and the Responsible Financial Innovation Act aim to provide a clear regulatory framework. However, they are yet to be enacted.
Experts believe that the U.S. needs to prioritize passing legislation and implementing regulations to ensure it can adequately supervise USD stablecoin activity and benefit from its growth. Jason Somensatto, Head of North America Policy at Chainalysis, emphasized the importance of resolving regulatory debates in the interest of global competition and necessary regulation.