Tether and Circle Vie for Stablecoin Dominance as Regulations Loom

Stablecoin Market Enters Third Phase with Traditional Banks Set to Join as EU and US Regulation Looms

  • The stablecoin market is entering a third phase of competition with players like Tether and Circle positioning themselves amid increasing regulation.
  • Banks and payment firms are expected to join the stablecoin space, with experts predicting up to 50 new stablecoins by year-end.
  • Cross-border payments have emerged as a key use case, with stablecoins now representing 54% of Fireblocks’ transaction volume, up from less than 20% in 2020.

The stablecoin industry is moving into a third competitive phase as major issuers Tether and Circle prepare for increased regulation from the European Union’s Markets in Crypto Assets (MiCA) regime and pending U.S. legislation, according to digital asset specialists Fireblocks. This new phase will feature traditional banks and payment companies integrating these blockchain-based tokens into their existing services.

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“We are going to see banks issuing stablecoins, as they are under MiCA,” said Ran Goldi, SVP of payments at Fireblocks, in an interview. “You are seeing financial institutions that are fintechs entering such as Robinhood, Ripple and Revolut. By the end of this year, you are going to see maybe 50 more stablecoins.”

The stablecoin market has grown substantially, with Tether’s USDT leading at nearly $145 billion in market cap, while Circle’s USDC has over $60 billion in circulation. According to a Tuesday note from Standard Chartered, the stablecoin market could reach $2 trillion by the end of 2028.

Goldi explained that the industry has already passed through two earlier phases. The first occurred when USDC competed against Paxos-issued BUSD, with Circle ultimately prevailing after Paxos had to drop BUSD for regulatory reasons. The second phase pitted Circle against Tether, with USDT gaining dominance, especially outside the U.S.

Growth in Cross-Border Payments

Stablecoins initially gained prominence as tools for moving value between volatile cryptocurrencies but have evolved into essential instruments for international payments. Fireblocks reports that stablecoin transactions have grown from less than 20% of their total transaction volume in 2020 to approximately 54% last year.

“Some of these PSPs are firms you may not have heard much about, but they are actually moving billions in stablecoins, servicing businesses to pay to other businesses most of the time,” Goldi noted. He highlighted a typical use case: an importer in Brazil converting local currency to stablecoins to pay suppliers in Turkey or Singapore, either directly or after converting to the destination currency.

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Several banks have already embraced this cross-border application, including Braza Bank in Brazil, BTG Bank, and DBS in Singapore. These institutions now provide business accounts supporting stablecoin transactions.

Banks Planning Their Stablecoin Strategy

According to Goldi, dozens of banks have approached Fireblocks to explore various stablecoin integrations, from acting as on/off ramps to possibly issuing their own stablecoins.

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“It will be interesting to see if banks build something on their own, or use BNY Mellon, for instance, that serves banks, or a vendor like Fireblocks,” said Goldi. “I think the large tier-1 banks like JPMorgan, Citi and Morgan Stanley will build their own tech, while the tier-2 banks will want to use some hosted tech provider.”

He expects most banks to submit strategic plans by the end of this quarter, approve those plans by year-end, and potentially launch stablecoin services in 2026, acknowledging the traditionally slow pace of banking innovation.

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