The lack of regulation in the U.S. is the primary inhibitor of widespread adoption of stablecoins, according to a recent S&P Global study.
"The regulatory debate in the U.S., if and when regulation is adopted, could encourage the adoption of stablecoins," said Mohamed Damak, a managing director at S&P Global and the
"[Regulation] would reassure the users of stablecoins on issues like, for example, the quality of the underlying assets, the segregation from the assets of the sponsor," Damak said. "The fact that in some of the proposals there is a requirement to maintain a certain capital level and appropriate liquidity from the stablecoin sponsor" will give banks and others more confidence in stablecoins.
Clarity on those issues and standard requirements for stablecoins could be a bridge between traditional finance and decentralized finance, Damak said.
"All these could reassure the users of stablecoins," Damak said. "It could also resolve one of the issues that the integration between [traditional finance] and [decentralized finance] is facing today, which is how to bring a new entity on the chain."
Stablecoins are a form of cryptocurrency that are pegged to a fiat currency, often one to one, with the aim of decreasing volatility. The
"It's fair to say the U.S. has been a bit of an outlier in terms of its approach to regulation so far, mainly enforcement driven, rather than rulemaking," O'Neill said. "The SEC has been pretty explicit about its changing tack on that front and I think that will bring clarity to entities that are operating primarily in that space, particularly around exchanges who have had to deal with litigation around whether some of the assets that they list are securities."
"There's an overall atmospheric impact, in terms of regulated entities feeling that it's OK to dip their toes into this space, whereas previously, there may have been an impression that it may not be worth the hassle," O'Neill said.
The report analyzed the three major bills being contemplated by Congress on how to best regulate stablecoins. The proposals are similar in many ways but differ when it comes to questions over whether issuers are regulated at the federal or state level.
The heist is among the largest ever experienced by the crypto industry and highlights concerns many have over the need for better regulation.
Market capitalization of stablecoins has increased dramatically in the last six months, growing from $160 billion in August to $230 billion in February, according to data from S&P Global. Cathie Wood, founder and CEO of Ark Invest who has been bullish on cryptocurrencies, touched on this in a
"The very interesting thing to us is the $250 billion of stablecoins TVL – total value locked – out there has translated into transaction values that were higher last year than Visa and Mastercard," Wood said. "You get a sense that while this is happening seemingly surreptitiously, it's becoming massive." The card networks still have higher transaction volumes, she noted, but the value of each transaction is higher on stablecoins.
O'Neill said 2024 was a year of growth for tokenized money market funds, which utilize stablecoins and provide "instant redemption capabilities to investors."
"That's something that illustrates the benefit of the technology, because ultimately, the key benefit is having an asset and payment that can happen on the same ledger in a way that's efficient and secure," O'Neill said.
O'Neill said stablecoins are seeing "interesting growth" with BlackRock and other major financial institutions getting involved, but still face hesitancy from others because of the lack of government guidance.
"[The limited adoption in the U.S. is] against the backdrop of not having regulatory clarity around stablecoins and banks not knowing if they can engage with them or not," O'Neill said. "We see this as a major potential unlock in terms of allowing some of those innovations that have been well tested in the last couple years to scale, because there can be more confidence around those on-chain payment solutions."
Furthermore, Wood said widespread adoption of stablecoins would help further access to U.S. dollars.
"Stablecoins, the most regulatory compliant ones, are backed one for one by Treasury securities, which means they are providing access to dollars to more and more people around the world in a way that we've never seen," Wood said. "Easy access – that's a boon. If we're right, then bitcoin and ether and Solana will be side by side by the dollar. The dollar's really perpetuating out there because of this movement."
