Supply of Stablecoins Decreases Despite Positive Signals

While the newly launched stablecoin by PayPal is still making waves, the supply of these assets has plummeted over the past year.

Supply of Stablecoins, Crypto Trading Volume Plummets Despite Positive Signals

According to data from The Block, the total supply of stablecoins has significantly decreased since mid-2022. In 2023 alone, the supply of stablecoins has dropped by 12%, from $139 billion at the beginning of the year to $122 billion as of August.

Total supply of stablecoins from September 2022 to present. Source: The Block

Some experts believe this situation will soon reverse, citing the entry of payment giant PayPal. Mark Lurie, CEO of Shipyard Software, argued:

"If PayPal proves the utility of stablecoins, not only will their benefits be recognized, but traditional financial institutions will also follow suit to enhance their competitive advantages. This could be a catalyst for widespread adoption of stablecoins in the near future."

Similar to Tether (USDT) and Circle (USDC), PayPal's stablecoin USD (PYUSD) is backed by the US dollar, government bonds, and equivalent assets. PYUSD is an ERC-20 token, issued in collaboration with Paxos on the Ethereum blockchain. Initially, this stablecoin was launched with limited availability in the US market, primarily for purchasing goods, cryptocurrency transactions, before broader adoption.

See more: Updates on USDT - USDC - DAI - FDUSD - PYUSD stablecoins as of August 8, 2023

According to another study by Kaiko, overall crypto trading volume has hit a four-year low.

If quarter 3 ends peacefully, the cryptocurrency market may be undergoing an extended period without significant declines. It has been quite some time since the market faced a major sell-off. However, one should still be prepared for potential downturns at any time.

While the US has been studying and developing crypto regulations for some time, there is still no official regulatory framework dedicated to the industry. The news of PayPal launching a stablecoin has sparked widespread interest. Patrick T. McHenry (R-N.C.), Chairman of the US House Financial Services Committee, emphasizes the importance of regulating stablecoins following PayPal's move.

In a letter to member banks, the Federal Reserve recently clarified requirements for institutions wishing to "issue, hold, or use stablecoins in payments." To obtain Fed approval and non-supervised status, banking institutions must demonstrate risk management capabilities and financial soundness.

Also yesterday, the central bank introduced a new supervision program to enhance oversight of banks in the crypto, blockchain, and non-bank partner relationships based on technology. The program aims to strengthen and improve the current regulatory framework for crypto.

Meanwhile, the UK Treasury has responded to consultations by updating proposals for regulating stablecoins. This framework delegates authority over stablecoin issuance and circulation to the Bank of England and the Financial Conduct Authority (FCA).

Two weeks ago, the House Financial Services Committee passed comprehensive legislation for stablecoins after criticism from bipartisan members.