Nov 6, 2023

Despite crypto winter, Chainalysis says that stablecoin activity has remained resilient, but most of the growth is happening outside the US.

Video transcript

Despite crypto winter analysis says that stablecoin activity has remained resilient, but most of the growth is happening outside of the US. Joining us now to unpack. This is Cha Lysis Global Vice President of Public Policy Caroline Malcolm. Welcome to the show, Caroline. Great to be with you. All right, we spoke about Austin a little bit earlier about stablecoins and his reaction to the SEC subpoenaing paypal over py US. D. I want to start the segment of uh getting your reaction there. What do you make of that? We've seen a lot of enforcement actions taking place in the US. I think what's most striking around the Stablecoins ecosystem in general is that first point you mentioned is we are starting to see that stablecoin activity both in terms of issuance, but also in terms of the volumes moving through exchanges starting to move outside of the US. And at the same time, we've got in Congress, of course, a number of different bills still under consideration, which would finally put in place a framework for Stablecoins. But in the absence of that, we still do have those enforcement actions taking place Caroline. You know, I asked Austin, the same thing, I'll ask you, what do you think is driving this growth outside of the US? Is it regulation or is it the possibility that there are just more use cases? There are more use cases for the regular everyday person outside of the US when it comes to stable coins. So I think what's really interesting is when we look at stablecoins and we look at the digital asset ecosystem more broadly, we've just recently released the global crypto adoption index which looks at retail adoption. But we also included that some of the details about just raw transaction volumes. The US definitely still leads the way when it comes to raw transaction volumes, even though you have India sitting at the top of the retail adoption index. So that's grass roots adoption. So you would expect to see uh in alignment with those raw transaction volumes, even more of the stablecoin activity taking place in the US. But what we can actually see in, in reality is that more than half of all on chain transaction values either going to or from centralized services uh over the last 12 months uh took place in stablecoins and more than 90% of that was in US dollar backed Stablecoins. But increasingly that's not happening through US, issued services or US exchanges. When do you think we'll see Stablecoin legislation in the US? It's a great question. Um I think it's really interesting. So in, in my role I work with and talk with governments and, and other people in the ecosystem all over the world. And I think people look at the US and are very surprised that we haven't seen that, that, that legislation go forward yet. And I think that's because from the perspective outside of the US, they obviously this US dollar dominance in the market is obviously a very strong point for the US economy. And yet it's not being supported by that legislative framework which would allow it to really take off. And at the same time, you've got that legislative framework starting to take place in other countries around the world. Just last week, we had the UK announce its timetable for forward legislation on stable coins which will be early in 2024. So I think there's a number of factors, many of them are not related to crypto which is stopping the uh the progress of that through the US Congress. But most importantly, those conversations are continuing to happen. And so I try to remain positive about where we see that going over the coming 12 months when we look at the entire globe, what country or what jurisdiction do you see is leading the way when it comes to legislation or innovative legislation. So we think we've got some very interesting kind of different approaches coming out and those different approaches are going to be very interesting from the perspective of how the market responds and actually sees that adoption grow. So I think probably the most well known piece of legislation when it comes to stable coins is probably under the European regime, the markets and crypto assets regime, a large part of which really focused on what they call emo tokens and asset reference tokens. Now that obviously also had some interesting aspects. And this is talking about, you know, that competitive landscape for the stablecoin ecosystem because the Europe made clear that it wanted to try and put some limits around us dollar back, Stablecoins and how how much uh of the digital ecosystem they actually took up. So they did that by putting some limits around transaction volume and total transaction numbers for non European currency, stablecoins. A different approach perhaps in the UK, we are starting to see the outlines of that but certainly in one of the earlier consultation drafts, there was some suggestion that Stablecoin issuers would have access to Bank of England Reserves. Now this would really be a game changer. The first we would see of that and comes back to one of the points of discussion we've seen often in the US is will these issuers have access to those federal bank reserves, which obviously provides a very clear stop gap, but also can make sure that some of that risk that we can see in commercial banks who are holding those deposits is actually taken off the table. So there's a couple of important differences there. And probably the last one I will mention is over in Singapore, which has recently announced it's after a consultation, its response on stablecoins. So looking forward to seeing more regulation there, we've obviously seen uh Singapore as a hub across a pack for digital assets in general and having this specific regime for stablecoins that's only going to cement that further. I want to turn now to another recent report published by analysis that said North America leads the world in crypto usage. You mentioned it um just a few moments ago, the report says that North America's crypto market is driven by institutional activity more than any other region. Talk to me about how you expect that number to change, possibly increase if there's a spot Bitcoin ETF approval. So look, obviously it's Bitcoin ETF is going to be a sort of a game changer in terms of opening up the markets to even more participants. And I think that's really something that we've seen. We're hoping to see that brought a long sign of regulatory regime. And I think, you know, an important point I'd like to make here is that often, you know, people who oppose putting in place a regulatory regime. I hear this often in the discussions in the US is they say that it makes them pro crypto. And I think the point I would make and the data really bears this out is that putting in place a regulatory regime is about making sure you have consumer protection and you have safe and fair markets. It's not about being pro or against crypto. It's recognizing that this market is already there. And with developments like uh Bitcoin spot, Bitcoin ETF would actually even grow further. But it's making sure those markets are safe and transparent. I think that's why we see these developments as being very, very exciting on the uh market side. But we'd love to also see that regulatory framework come alongside it and make sure that those safeguards are in place and that we actually have the foundation for this growing ecosystem that is uh continuing to, to thrive and also change and adapt in response to some of these developments. We're talking about this increase in stablecoin adoption outside of the US. The report, the report notes a decline in North America. Um Talk to me a little bit more. I know we touched on them already in the segment but talk to me a little bit more about the driving factors and the decline of stablecoin use maybe outside of regulation. Yes, look, I think there's a couple of different things which can affect that and we have certainly seen that although the US remains the leader in terms of the share of total raw transaction volume, we are still seeing growth in other countries which is quite significant and also growth in the different types of use cases. So for example, in relation to what we might think about as game file the NFT ecosystem um or uh in, in some of the other use cases for, for digital assets. And I think we're particularly seeing that in regions like the Middle East and, and in Asia as well. But if I think so, I think some of those things where stablecoins play a role in those others systems and, and defi for example, is a place where people go as they move in and out of digital assets, they're perhaps not ready to move into a new position in another digital asset. But rather than moving back into fiat, they stay within the ecosystem and move simply to a to a Stablecoin, we do see as those other parts of the ecosystem grow outside the US, the Stablecoin usage in that grows as well from your perspective. What's the one killer use case for stablecoins? Look, I think the exciting thing about this space is we're still really working out what that looks like to date. It has been this idea of it's a transaction asset as against other digital assets. But we've also seen it starting to take place, for example, in the pavement ecosystem in the traditional economy, we've seen it being used as a store of value in countries where you have volatile local currency. And I think we always have to think back to, you know, uh other technologies and their adoption cycle and how it's actually played out to really realize we are actually quite early on. So we often say, well, you know, crypto has already been around for 15 years, but I often say it's also only been around for 15 years. And I think with that in mind, if we think about other technologies where we've really, we began to explore their different use cases over time, I think we're going to see that in the stablecoin place as well. And when we see newer uh use cases and the development of use cases, for example, in relation to tokens assets, you absolutely need that payment rail in a sort of stable coin um to, to go alongside it to get the full efficiencies of tokens asset systems. There's some conversation in the industry that begs the question, you know, can stablecoins coexist with CBD CS or can they fill the purpose of CBD CS um in, in your research? And we look at some of the data that's been published by Chain Alys. Do you think the two can coexist or have you seen the two coexist in any jurisdiction? Look, we, we there is still very limited live applications of CBD C. And I think probably China's use case is probably the main one that comes to mind in that regard. And certainly in China, we continue to see use of other stablecoins alongside the E one. So certainly they can coexist. And I think again, we can look back to other, make analogies to other similar instances. Just as in the traditional finance world, we have a place for central bank bank deposits and we also have a place for innovations in payment systems. We saw that particularly over the last decade through the rise of fintech, which has really been about that, that front end of the traditional finance ecosystem. We're going to see the same thing here. Central banks and governments are really not best placed to drive the innovation agenda. They provide a very solid foundation and then we've always seen the innovation occur from the private sector. And I think where we have that regulatory framework in place, you're going to get that best of both worlds where with those safeguards in place, you're allowing the ecosystem to grow and evolve in response to market demand, demand and have that done within the people who are best placed to do that, which is the private sector, Caroline. Thanks so much for joining me this morning. That was a very insightful conversation on staple coins. Thanks J that was Cha Alys, Global Vice President of Public Policy, Caroline Malcolm.

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