The future of stablecoins: which stablecoins will withstand the regulatory onslaught?

In the fourth quarter of 2023, the New York State Financial Services Authority published new guidance on token listings. This guidance provides a "green list" of stablecoins recommended for listing on exchanges providing services to the U.S. market.

USDT

The first and leading cryptocurrency stablecoin in terms of capitalization exceeds $139 billion as of December 2024. Stablecoin USDT appeared back in 2014, at the dawn of the crypto market's formation. It was able to withstand the onslaught of regulators who repeatedly accused the Tether issuer of fraud and other criminal acts.

Despite the accusations, the stablecoin continues to exist safely on the market, and Tether follows the Office of Foreign Assets Control (OFAC) 's sanctions orders, blocking addresses with sanctioned USDT tokens.

After the MiCA bill came into force, Tether was forced to leave the EU market because it did not have the necessary licenses to operate in this economic zone. For example, even before the bill came into force in March 2024, the major crypto exchange OKX removed USDT from the list of supported stablecoins.

Meanwhile, Tether has abandoned its euro-linked EURT stablecoin and instead invested in European issuer StablR. StablR has issued a EURR stablecoin backed by and pegged to the euro. In this way, Tether aims to facilitate the integration of stablecoins into the European economy and continue to compete with other issuers in the EU market.

At the same time, Tether continues to build its presence in the European economic zone by partnering with another issuer, Quantoz Payments. Together with this company, Tether has already issued new USDQ and EURQ stablecoins linked to the U.S. dollar and euro exchange rates, respectively.

USDC

Circle released the second most capitalized stablecoin in September 2018. Unlike Tether, Circle continues to operate in the European Union and provides services with its USDC stablecoin, which is compliant with MiCA regulations. Circle received its license in July 2024, being among the first to do so.

Over the year, the market capitalization of USDC stablecoin has grown by more than 70% — from $25 billion to $43 billion. For comparison, the same indicator of USDT token has increased only by 52% — from $91.3 billion to $139.6 billion.

Moreover, the USDC token was one of the few stablecoins that were not removed from the Coinbase trading floor in December 2024. The exchange has already delisted several major stablecoins, such as USDT, PYUSD, GUSD, GYEN, and DAI, as they did not comply with the EU's MiCA regulations.

Compliance with MiCA regulations has allowed them to take the lead in the EU market and strengthen their position, attracting additional investors. If the trend continues, the share of USDC stablecoin in the crypto market will increase even more, and the capitalization gap between this token and USDT will narrow.

DAI

Stablecoin DAI is the fourth most capitalized stablecoin, significantly different from its centralized competitors. DAI is a partially decentralized stablecoin — users can issue tokens on their own without additional permission by pledging other crypto assets such as Ethereum (ETH).

The decentralized nature of the DAI stablecoin has made it difficult to continue operating in the EU, making it difficult to follow MiCA regulations by definition. As of December 2024, Maker issuers have been unable to obtain MiCA-compliant licenses to continue operating within the economic zone.

Given this, Coinbase, Uphold, and several other major cryptocurrency exchanges have delisted the DAI token. It is not yet known whether Maker plans to obtain a license to continue its presence in the EU market. It will be extremely difficult for decentralized stablecoins to find the workarounds that the Tether issuer has followed: Maker can only invest in companies that issue stablecoins centrally, like EURC or EURQ.

However, a possible solution would be to focus on the new centralized USDS stablecoin that the Maker issuer plans to issue. At the same time, the DAI token will continue to exist as before — the presence of USDS will prevent the issuer from being forced out of the Euro market.

New players in the stablecoin market

After the MiCA bill came into force, new stablecoins appeared on the horizon, and they are actively integrating into the European Union's economy.

In addition, neither USDT nor USDC, the leading stablecoins in the crypto market, made it to the "green list" of tokens recommended for listing by the New York State Financial Services Authority. However, somehow, other, less well-capitalized stablecoins made it in, including:

• Gemini Dollar (GUSD);
• Pax Dollar (USDP);
• PayPal Dollar (PYUSD).

Oddly enough, the stablecoin First Digital USD (FDUSD), which replaced Binance USD (BUSD) and was issued by the same issuer as USDP, didn't make the list either.

Eurite (EURI)

In addition to EURR and EURQ, new MiCA-compliant stablecoins have already been released on the EU market, and one of the first among them was EURI, a token backed by the euro and linked to its exchange rate.

EURI was issued by the issuer Banking Circle CA. Its peculiarity is that the company itself does not have access to the reserves with which the Eurite stablecoin is secured, which protects investors from bankruptcy and loss of their digital assets.

STASIS Euro (EURS)

The EURS stablecoin was issued by Malta-based STASIS before the MiCA bill came into effect, but the issuer eventually obtained all the necessary licenses to operate in the EU.

As of December 2024, STASIS Euro is the leading euro-linked stablecoin by capitalization, reaching $129 million. In comparison, the market capitalization of the next-to-last EURS stablecoin, EURC, from issuer Circle, only reaches $89.7 million.

Conclusion

To summarize, not all stablecoins can withstand the regulatory onslaught, especially low-capitalized ones. A prime example is EURT, which ceased to be supported by Tether after MiCA came into effect.

However, even large-scale stablecoins have these risks. Again, an illustrative example will be the BUSD stablecoin from issuer Paxos, previously supported by cryptocurrency exchange Binance but removed from all platforms in 2023 at the request of regulators.

The reason was a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Paxos to recognize Binance USD as a security. As a result of the lawsuit, the New York State Department of Financial Services (NYDFS) ordered Paxos to stop issuing the stablecoin BUSD, and exchanges were forced to remove the token from their platforms.

As regulatory pressure intensifies, new bills tightening business rules for cryptocurrency companies may appear in the future, and there is a risk that some, even large stablecoins, may disappear from one or another economic zone, such as the EU or the U.S. First of all, decentralized stablecoins like DAI may be under attack, and they may simply be "squeezed" out of the market due to the impossibility of fully controlling them.