Stablecoins in circulation: global volume and value

Contents:

2. The largest stablecoins and their market cap dynamics in the past 6-12 months

3. Regulatory trends

4. Corporate plans to introduce stablecoins

5. Technological innovation and prominent startups in the stablecoin market

6. Scandals around stablecoins

According to CoinMarketCap, the overall market capitalization of all stablecoins in mid-April 2021 fluctuated  $84.5 billion. A total of $245 billion worth of stablecoins were traded every day.

Below is a list of the top 10 stablecoins by market cap, according to CoinMarketCap:

EU legislators have long been concerned about money laundering using cryptocurrency and have already attempted to regulate stablecoins in this regard. For instance, in September 2020, the finance ministers of Germany, France, Italy, Spain, and the Netherlands requested that the European Commission develop a set of legal norms that would regulate the emission and circulation of stablecoins across Europe. The ministers also asked to ban stablecoin transactions in the EU before such a law is passed. 

In response, the Commission issued a draft of a directive called “REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Markets in Crypto-assets”. As of March 2021, the discussion of the Directive in the EU Council was still ongoing. 

According to the plan, the Directive will regulate the emission and circulation of all stablecoins with a market capitalization of over 1 million euro. It will cover White Paper contents, KYC for stablecoin buyers, marketing communications of the companies that issue and trade stablecoins, and more. 

Considering how slowly new EU laws are passed and integrated into the national legal systems of each EU country, the Directive is unlikely to enter into force before 2022. 

Meanwhile, the UK has started work on its own stablecoin legislation. In January 2021, HM Treasury addressed cryptocurrency companies, professional associations, and research institutions, asking them to express their opinion on the matter of stablecoin and crypto asset regulation. 

The Treasury suggests applying the same norms to stablecoin payments as to regular fiat payments. 

In the US, regulators have issued some explanations concerning stablecoin use. In September 2020, the Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency (OCC) published the first guidelines concerning the regulation of fiat-backed stablecoins. 

US banks are now allowed to offer fiat custody services to stablecoin issuers on the condition that the stablecoins in question are stored in hosted wallets – that is, controlled by a trusted third party and not just the stablecoin owners. The reserves can be stored in the bank’s custody as the issuer’s deposit or as a deposit of the individual who owns the stablecoins. 

Further, the SEC explained that some types of fiat-backed stablecoins may not be considered securities, but their issuers should still consult with the Commission to obtain a decision in each individual case. The SEC also stated that it would generally continue to view algorithmic stablecoins as securities, with all the limitations that entail for the issuers. 

In January 2021, the range of permitted operations with stablecoins in the US was expanded. The OCC published a letter explaining that federally chartered banks can participate in independent node verification networks (INVN) and use stablecoins for payment transactions and other banking purposes.  

In Asia, stablecoins are being discussed in the context of the planned free-trade zone for China, Japan, and Korea, as well as pandemic relief. In May 2020, billionaire and managing partner of Sequoia Capital Neil Shen, with the support of some members of the Hong Kong administration, put forward a proposal to the Chinese People’s Political Consultative Conference. 

The Proposal on the Development of Cross-Border Digital Stablecoins in Hong Kong features the following measures:

• Creating a stablecoin backed by a basket of four fiat currencies: CNY, HKD, KRW, and JPY
• Creating a fiat reserve fund to ensure secure operation of the custodial wallets holding the new stablecoin
• Appointing People’s Bank of China as the official head of the project
• Developing legal norms for stablecoin circulation by the Hong Kong Monetary Authority and People’s Bank of China
• A pilot launch of stablecoin transactions between mainland China and Hong Kong

In the past three years, the authorities of Hong Kong introduced several regulations for cryptocurrencies and blockchain, and even started licensing crypto companies in November 2019. 

This made Hong Kong an attractive jurisdiction for crypto startups of the type described in Neil Shen’s proposal. 

Nevertheless, for now, these plans remain on paper. In October 2020, the Chinese government announced that only one CNY-pegged stablecoin would be legalized in mainland China, while the circulation of the rest would be forbidden. 

In December 2020, Chinese authorities issued $3 million worth of digital yuan, and JD.com became the first e-store to accept payments in this currency.

UAE has also been working on new cryptocurrency regulations. In February 2020, FRSA (Financial Services Regulatory Authority) updated the country’s crypto legislation. 

Now the issuers of fiat-backed stablecoins are obliged to get licensed as a multilateral trading facility, or MTF. Moreover, the issuer must prove that their stablecoins are indeed backed by fiat assets at a 1:1 ratio.

Overall, we should expect increasingly strict stablecoin regulation across the world. This trend is linked to the latest set of anti-money laundering guidelines issued by the FATF (Financial Action Task Force) in September 2019. 

It is the first such document to deal extensively with crypto transactions, and FATF recommends using the same controls as for traditional banking and exchange transactions to prevent money laundering that involves virtual assets.

In the past two years, many large banks and technology companies have considered issuing their own stablecoins or partnering up with existing stablecoin projects. Few of these plans have yielded any tangible results. However:

• In December 2020, Visa announced a partnership with Circle, the company behind the USDC stablecoin. The partnership will allow the holders of corporate Circle cards to spend USDC wherever Visa is accepted
• In February 2019, JP Morgan issued a prototype of its stablecoin called JPM Coin, which they intended to test together with several institutional investors. The first transaction with JPM Coin took place only in late October and early November 2020. In the future, JP Morgan’s blockchain projects will be run by the dedicated Onyx department

A few more projects have been under development for years:

• Several years ago Mitsubishi planned to launch a stablecoin with the ticker MUFG and even scheduled the launch for late 2020. MUFG is pegged to the Japanese yen and was designed to be used for shopping. As of late 2020, the project’s status was unknown, but there are rumors that Mitsubishi now plans to launch its own chain of vending machines that will accept MUFG.
• IBM plans to issue custom-made stablecoins for other companies based on its Blockchain World Wire (BWW) platform for cross-border B2B payments. The project will see IBM partner up with banks from different regions, including the Philippine RCBC, Brazilian Banco Bradesco, and South Korean Bank of Busan.
• The Russian Sberbank announced in August 2020 that it was working on Sbercoin, a rouble-backed stablecoin. In January 2021, the Central Bank of Russia received Sberbank’s request to register the blockchain platform built for issuing the new cryptocurrency.¹¹
• Japanese IT giant GMO Internet already has a blockchain platform and planned to issue a yen-pegged stablecoin in 2020. In December 2020, the company obtained a New York state license for the emission.
• Meanwhile, Facebook’s Libra project, which couldn’t launch in the US because of opposition from the SEC, has been transferred to Switzerland. However, it also encountered problems in Switzerland as the EU started work on new legislation to regulate virtual assets, including stablecoins. Finally, at the end of 2020 the stablecoin was renamed Diem, and now its launch is scheduled for Q2 2021.

The Korean startup Terra is working on an e-commerce payment system based on a set of stablecoins that are pegged to different fiat currencies and are automatically stabilized using Luna cryptocurrency. The new system should allow shoppers to make cross-border purchases without currency conversion and card processing fees. As of April 2021, Terra had over 2 million users, and its stablecoins are accepted by 76 online stores using the CHAI wallet. 

In September 2020, the company issued a new USD-pegged stablecoin, TerraUSD (UST), which soon reached a market capitalization of $1.8 billion. TerraUSD is an interchain asset, meaning that it supports different blockchains. Terra raised $32 million upon launch in 2018, and its key investors are four crypto trading companies: Binance Labs, OKEx, Huobi Capital, and Upbit.

Multis is a former YCombinator alum that is now working on a B2B crypto asset management platform – a sort of an online banking system for businesses. Multis allows companies to connect several wallets, store both crypto and fiat in their account, earn with stablecoin lending (DAI and USDT are already supported), and send cross-border payments.

Liechtenstein-based Frick bank was the first to offer (in May 2020) Stablecoins-as-a-Service, or ScaaS. According to the white paper, ScaaS will allow businesses to issue fiat-pegged stablecoins that will be compliant with PSD2 and other EU norms. The purpose of such stablecoins is to create an e-commerce payment system and to save on card transactions and currency conversions. Importantly, one doesn’t need to have advanced IT skills or link external crypto wallets to use SCaaS.

PegNet is the first decentralized protocol that allows converting one stablecoin into another at a fee of just $0.10 per transaction. PegNet is compatible with various blockchain platforms, does not require collateral, and allows users to store funds as a basket of any fiat, cryptocurrencies and precious metals.  

In September 2020, Circle announced a new payment platform in partnership with Dapper Labs, the studio behind CryptoKitties. Circle plans to integrate its USDC stablecoin into the new Flow Dapper Labs network. For the first time, it will become possible to use credit and debit card payments to pay in dApps, decentralized collectible marketplaces, and trading platforms that allow cross-border settlements in USDC.

ZeFi plans to offer deposits in USD-pegged stablecoins that will yield an APY of 7%. To achieve this yield, the startup will lend user funds, paying interest in real-time. ZeFi is described as a non-custodial wallet that will allow users to earn interest for supplying stablecoins into decentralized money markets, such as Compound liquidity pools. 

The deposited funds will be made available to borrowers at a collateralization rate of over 150%. These borrowers use Compound to get access to digital dollars without selling their assets or risking future profits. Last year, Compound pool yields ranged between 3% and 9%, though there is no guarantee that these numbers will continue. On Compound, borrowers have to supply collateral of at least 150% to take out a loan.

Basis shutdown

Back in spring 2018, Basis raised $133 million in funding to launch an algorithmic stablecoin. By the end of the same year, the startup’s lawyers concluded that the proposed algorithm would lead to Basis being recognized as a security by the SEC and to restrictions being placed on the company. In December 2018, Basis was forced to shut down operations and return the money to investors.

New York Attorney General against USDT

On February 17, 2021, New York Attorney General settled with the companies Tether, Bitfinex, and iFinex concerning the accusations that they had covered up losses and provided false information about the fiat reserves backing Tether tokens (USDT). As it turned out, USDT was only 74% backed by fiat dollars at only 74%. The settlement includes the following clauses:

1. The three companies are banned from conducting trading transactions (on or out of exchanges) with any New York residents and entities, including any New York-registered entity that has a BitLicense or a trust account with the New York Financial Services Department
2. Tether, Bitfinex, and iFinex will have to pay an $18.5 million fine without admitting or denying the Attorney General’s findings
3. The companies will have to send reports to the Attorney General concerning Tether reserves, money transfers between Tether and Bitfinex, and the separation of client, reserve, and operational accounts
4. Tether is obliged to publish a list of the asset categories used to back Tether (cash, loans, securities, etc.), specify the share of each category in the overall reserves, and state if such assets represent a loan or credit facility belonging to an affiliated entity

According to CoinMarketCap, the overall market capitalization of all stablecoins in mid-April 2021 fluctuated  $84.5 billion. A total of $245 billion worth of stablecoins were traded every day.

Below is a list of the top 10 stablecoins by market cap, according to CoinMarketCap:

EU legislators have long been concerned about money laundering using cryptocurrency and have already attempted to regulate stablecoins in this regard. For instance, in September 2020, the finance ministers of Germany, France, Italy, Spain, and the Netherlands requested that the European Commission develop a set of legal norms that would regulate the emission and circulation of stablecoins across Europe. The ministers also asked to ban stablecoin transactions in the EU before such a law is passed. 

In response, the Commission issued a draft of a directive called “REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Markets in Crypto-assets”. As of March 2021, the discussion of the Directive in the EU Council was still ongoing. 

According to the plan, the Directive will regulate the emission and circulation of all stablecoins with a market capitalization of over 1 million euro. It will cover White Paper contents, KYC for stablecoin buyers, marketing communications of the companies that issue and trade stablecoins, and more. 

Considering how slowly new EU laws are passed and integrated into the national legal systems of each EU country, the Directive is unlikely to enter into force before 2022. 

Meanwhile, the UK has started work on its own stablecoin legislation. In January 2021, HM Treasury addressed cryptocurrency companies, professional associations, and research institutions, asking them to express their opinion on the matter of stablecoin and crypto asset regulation. 

The Treasury suggests applying the same norms to stablecoin payments as to regular fiat payments. 

In the US, regulators have issued some explanations concerning stablecoin use. In September 2020, the Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency (OCC) published the first guidelines concerning the regulation of fiat-backed stablecoins. 

US banks are now allowed to offer fiat custody services to stablecoin issuers on the condition that the stablecoins in question are stored in hosted wallets – that is, controlled by a trusted third party and not just the stablecoin owners. The reserves can be stored in the bank’s custody as the issuer’s deposit or as a deposit of the individual who owns the stablecoins. 

Further, the SEC explained that some types of fiat-backed stablecoins may not be considered securities, but their issuers should still consult with the Commission to obtain a decision in each individual case. The SEC also stated that it would generally continue to view algorithmic stablecoins as securities, with all the limitations that entail for the issuers. 

In January 2021, the range of permitted operations with stablecoins in the US was expanded. The OCC published a letter explaining that federally chartered banks can participate in independent node verification networks (INVN) and use stablecoins for payment transactions and other banking purposes.  

In Asia, stablecoins are being discussed in the context of the planned free-trade zone for China, Japan, and Korea, as well as pandemic relief. In May 2020, billionaire and managing partner of Sequoia Capital Neil Shen, with the support of some members of the Hong Kong administration, put forward a proposal to the Chinese People’s Political Consultative Conference. 

The Proposal on the Development of Cross-Border Digital Stablecoins in Hong Kong features the following measures:

• Creating a stablecoin backed by a basket of four fiat currencies: CNY, HKD, KRW, and JPY
• Creating a fiat reserve fund to ensure secure operation of the custodial wallets holding the new stablecoin
• Appointing People’s Bank of China as the official head of the project
• Developing legal norms for stablecoin circulation by the Hong Kong Monetary Authority and People’s Bank of China
• A pilot launch of stablecoin transactions between mainland China and Hong Kong

In the past three years, the authorities of Hong Kong introduced several regulations for cryptocurrencies and blockchain, and even started licensing crypto companies in November 2019. 

This made Hong Kong an attractive jurisdiction for crypto startups of the type described in Neil Shen’s proposal. 

Nevertheless, for now, these plans remain on paper. In October 2020, the Chinese government announced that only one CNY-pegged stablecoin would be legalized in mainland China, while the circulation of the rest would be forbidden. 

In December 2020, Chinese authorities issued $3 million worth of digital yuan, and JD.com became the first e-store to accept payments in this currency.

UAE has also been working on new cryptocurrency regulations. In February 2020, FRSA (Financial Services Regulatory Authority) updated the country’s crypto legislation. 

Now the issuers of fiat-backed stablecoins are obliged to get licensed as a multilateral trading facility, or MTF. Moreover, the issuer must prove that their stablecoins are indeed backed by fiat assets at a 1:1 ratio.

Overall, we should expect increasingly strict stablecoin regulation across the world. This trend is linked to the latest set of anti-money laundering guidelines issued by the FATF (Financial Action Task Force) in September 2019. 

It is the first such document to deal extensively with crypto transactions, and FATF recommends using the same controls as for traditional banking and exchange transactions to prevent money laundering that involves virtual assets.

In the past two years, many large banks and technology companies have considered issuing their own stablecoins or partnering up with existing stablecoin projects. Few of these plans have yielded any tangible results. However:

• In December 2020, Visa announced a partnership with Circle, the company behind the USDC stablecoin. The partnership will allow the holders of corporate Circle cards to spend USDC wherever Visa is accepted
• In February 2019, JP Morgan issued a prototype of its stablecoin called JPM Coin, which they intended to test together with several institutional investors. The first transaction with JPM Coin took place only in late October and early November 2020. In the future, JP Morgan’s blockchain projects will be run by the dedicated Onyx department

A few more projects have been under development for years:

• Several years ago Mitsubishi planned to launch a stablecoin with the ticker MUFG and even scheduled the launch for late 2020. MUFG is pegged to the Japanese yen and was designed to be used for shopping. As of late 2020, the project’s status was unknown, but there are rumors that Mitsubishi now plans to launch its own chain of vending machines that will accept MUFG.
• IBM plans to issue custom-made stablecoins for other companies based on its Blockchain World Wire (BWW) platform for cross-border B2B payments. The project will see IBM partner up with banks from different regions, including the Philippine RCBC, Brazilian Banco Bradesco, and South Korean Bank of Busan.
• The Russian Sberbank announced in August 2020 that it was working on Sbercoin, a rouble-backed stablecoin. In January 2021, the Central Bank of Russia received Sberbank’s request to register the blockchain platform built for issuing the new cryptocurrency.¹¹
• Japanese IT giant GMO Internet already has a blockchain platform and planned to issue a yen-pegged stablecoin in 2020. In December 2020, the company obtained a New York state license for the emission.
• Meanwhile, Facebook’s Libra project, which couldn’t launch in the US because of opposition from the SEC, has been transferred to Switzerland. However, it also encountered problems in Switzerland as the EU started work on new legislation to regulate virtual assets, including stablecoins. Finally, at the end of 2020 the stablecoin was renamed Diem, and now its launch is scheduled for Q2 2021.

The Korean startup Terra is working on an e-commerce payment system based on a set of stablecoins that are pegged to different fiat currencies and are automatically stabilized using Luna cryptocurrency. The new system should allow shoppers to make cross-border purchases without currency conversion and card processing fees. As of April 2021, Terra had over 2 million users, and its stablecoins are accepted by 76 online stores using the CHAI wallet. 

In September 2020, the company issued a new USD-pegged stablecoin, TerraUSD (UST), which soon reached a market capitalization of $1.8 billion. TerraUSD is an interchain asset, meaning that it supports different blockchains. Terra raised $32 million upon launch in 2018, and its key investors are four crypto trading companies: Binance Labs, OKEx, Huobi Capital, and Upbit.

Multis is a former YCombinator alum that is now working on a B2B crypto asset management platform – a sort of an online banking system for businesses. Multis allows companies to connect several wallets, store both crypto and fiat in their account, earn with stablecoin lending (DAI and USDT are already supported), and send cross-border payments.

Liechtenstein-based Frick bank was the first to offer (in May 2020) Stablecoins-as-a-Service, or ScaaS. According to the white paper, ScaaS will allow businesses to issue fiat-pegged stablecoins that will be compliant with PSD2 and other EU norms. The purpose of such stablecoins is to create an e-commerce payment system and to save on card transactions and currency conversions. Importantly, one doesn’t need to have advanced IT skills or link external crypto wallets to use SCaaS.

PegNet is the first decentralized protocol that allows converting one stablecoin into another at a fee of just $0.10 per transaction. PegNet is compatible with various blockchain platforms, does not require collateral, and allows users to store funds as a basket of any fiat, cryptocurrencies and precious metals.  

In September 2020, Circle announced a new payment platform in partnership with Dapper Labs, the studio behind CryptoKitties. Circle plans to integrate its USDC stablecoin into the new Flow Dapper Labs network. For the first time, it will become possible to use credit and debit card payments to pay in dApps, decentralized collectible marketplaces, and trading platforms that allow cross-border settlements in USDC.

ZeFi plans to offer deposits in USD-pegged stablecoins that will yield an APY of 7%. To achieve this yield, the startup will lend user funds, paying interest in real-time. ZeFi is described as a non-custodial wallet that will allow users to earn interest for supplying stablecoins into decentralized money markets, such as Compound liquidity pools. 

The deposited funds will be made available to borrowers at a collateralization rate of over 150%. These borrowers use Compound to get access to digital dollars without selling their assets or risking future profits. Last year, Compound pool yields ranged between 3% and 9%, though there is no guarantee that these numbers will continue. On Compound, borrowers have to supply collateral of at least 150% to take out a loan.

Basis shutdown

Back in spring 2018, Basis raised $133 million in funding to launch an algorithmic stablecoin. By the end of the same year, the startup’s lawyers concluded that the proposed algorithm would lead to Basis being recognized as a security by the SEC and to restrictions being placed on the company. In December 2018, Basis was forced to shut down operations and return the money to investors.

New York Attorney General against USDT

On February 17, 2021, New York Attorney General settled with the companies Tether, Bitfinex, and iFinex concerning the accusations that they had covered up losses and provided false information about the fiat reserves backing Tether tokens (USDT). As it turned out, USDT was only 74% backed by fiat dollars at only 74%. The settlement includes the following clauses:

1. The three companies are banned from conducting trading transactions (on or out of exchanges) with any New York residents and entities, including any New York-registered entity that has a BitLicense or a trust account with the New York Financial Services Department
2. Tether, Bitfinex, and iFinex will have to pay an $18.5 million fine without admitting or denying the Attorney General’s findings
3. The companies will have to send reports to the Attorney General concerning Tether reserves, money transfers between Tether and Bitfinex, and the separation of client, reserve, and operational accounts
4. Tether is obliged to publish a list of the asset categories used to back Tether (cash, loans, securities, etc.), specify the share of each category in the overall reserves, and state if such assets represent a loan or credit facility belonging to an affiliated entity