While PayPal's launch of a stablecoin this week was widely celebrated by the industry amid excitement about the arrival of massive American payment company to the space, the supply of the asset class has been declining for over a year. 

According to data from The Block, total stablecoin supply has been declining since the middle of 2022. In 2023, supply has fallen around 12% from $139 billion at the start of the year to $122 billion in August. 

Some analysts think the downturn could be about to change, especially with PayPal's entrance to the sector. 

"If Paypal can prove the use-case for stablecoins, not only will their utility become undeniably clear but other traditional financial institutions will face a competitive imperative to adopt stablecoins as well," Shipyard Software CEO Mark Lurie told The Block. "If Paypal is serious about using stablecoins, it could be a major catalyst for stablecoin adoption."

Regulatory positioning 

Regulatory regimes, meanwhile. seem to be positioning themselves for an expansion of stablecoin use.

In a letter to state member banks interested in “issuing, holding, or transacting in dollar tokens to facilitate payments,” the U.S. Federal Reserve said banks must demonstrate proper procedures to deal with liquidity and illicit finance risks.

The central bank on Tuesday provided new guardrails to strengthen its supervision of banks involved in stablecoin activity. Called the "Novel Activities Supervision Program," the Fed plans to enhance the supervision of all banking organizations it oversees, focusing on crypto, distributed ledger technology, as well as “technology-driven partnerships with nonbanks to deliver financial services to customers.”

On Tuesday, the UK Treasury also released a consultation response, updating proposals for a regulatory regime for systemic stablecoins. The framework described how the Bank of England and Financial Conduct Authority would co-supervise stablecoin issuance and usage.

source:theblock