Jessy, Jinse Finance
In 2024, major financial centers around the world have become increasingly clear in their regulation of stablecoins. With the clarification of regulations comes the explosive growth of stablecoins.
The situation of USDT being the dominant player has slowly changed, with the emergence of new stablecoins such as USDe in 2024. Major traditional financial institutions have also joined the fray, such as payment giant Stripe beginning to accept USDC as a payment medium, and Standard Chartered Bank in Hong Kong exploring stablecoin-related businesses. As the crypto industry and traditional finance become increasingly integrated, the use of stablecoins in the real world is also becoming more widespread.
Changes are also happening on-chain, with USDT on the Ton chain quietly emerging; while the total supply of USDC is steadily growing, its distribution across chains is changing, with Base chain becoming its new favorite, and the shares on Ethereum and Solana being adjusted, reflecting the diversified choices of users and capital flows.
All of these factors have shaped the competitive landscape of the stablecoin market in 2024 to be more diverse and intense.
Clarified Regulations
One of the most notable features of the stablecoin sector in 2024 is the gradual clarification of regulations. This has provided legal clarity for institutions looking to venture into stablecoins, allowing them to fully unleash their potential.
First, in the US, regulatory bodies such as the SEC have gradually clarified their stance on stablecoins, strengthening the scrutiny and regulation of stablecoin-related businesses. For example, they require stablecoin issuers to comply with strict registration and compliance requirements to ensure the lawful issuance and operation of stablecoins. The legislative process for stablecoin-related laws, such as the Stablecoin TRUST Act, is also progressing, which will provide a more explicit and specific legal framework for stablecoin regulation.
Hong Kong's Web3 development has also entered its second year, and the two biggest events in Hong Kong's Web3 development in 2024 were the launch of Bitcoin and Ethereum spot ETFs, and stablecoins entering the sandbox testing phase. In March 2024, the HKMA announced the launch of a "sandbox" for stablecoin issuers, allowing the testing of stablecoin issuance under regulatory supervision. In July, the list of sandbox participants was announced, including JD Coin Chain Technology (Hong Kong) Limited, Circle Innovation Technology Limited, and Standard Chartered Bank.
Furthermore, the Hong Kong Financial Secretary's Office is expected to submit a regulatory draft for fiat-backed stablecoins to the Legislative Council by the end of 2024, which will establish a 6-month transition period and clear licensing criteria, aiming to ensure the issuance and operation of fiat-backed stablecoins comply with international regulatory standards.
In Europe, new rules developed by the Crypto-Asset Markets (MiCA) regulation came into effect in the third quarter of this year, imposing a series of regulatory requirements on the issuance, trading, and operation of stablecoins.
In June this year, in the UAE, a region that is relatively more crypto-friendly than others, regulations for stablecoin licensing and supervision were approved, clearly stating that local companies and merchants can only accept stablecoins pegged to the Dirham as a means of payment, strengthening the regulation of stablecoins in the payments sector.
It is these gradual regulatory approvals that have laid the foundation for the blossoming of stablecoin projects.
Proactive Investments by Crypto Industry Leaders and Blockchains
Even without the gradual regulatory clarity, stablecoins have always been a battleground within the industry, with major blockchains, exchanges, and payment projects actively issuing their own stablecoins.
This year, with the clarification of regulations and the arrival of the bull market, the competition has become even more intense, and the moves of industry leaders have become more frequent.
Take Binance as an example. After its native stablecoin BUSD was halted by the SEC in the early years, it has been making various related attempts. First, it strengthened its cooperation with FDUSD, a stablecoin launched by FD121 Limited, a subsidiary of First Digital Labs, which was listed on Binance on July 26, 2023. Initially, Binance not only launched a series of fee-free activities to support this stablecoin, but also provided it with various trading services and functional support, including adding it to the Auto-Invest feature, the P2P trading platform, and the Binance Convert service.
For the industry-leading exchange Binance, it has been striving to have its own stablecoin. In addition to FDUSD, Binance also introduced the partner stablecoin TUSD in 2023.
In December 2024, Binance announced a strategic partnership with Circle, the issuer of USDC stablecoin; it also invested in and launched the Lista stablecoin: Lista, as the second project of Binance Megadrop, is the leader in the BNB decentralized stablecoin track, with business forms such as stablecoin lending and pledging dual-mode engine, and its TVL has grown rapidly since the airdrop task activity and the launch on Binance.
Furthermore, Binance has also invested in Perena, the first stablecoin infrastructure protocol on the Solana network, with the investment target being Quine Co behind the protocol, which focuses on real-world assets.
Other leading projects in the industry have also accelerated the layout of stablecoin projects this year, such as the stablecoin Ripple USD to be launched by the payment company Ripple by the end of this year.
Major blockchains are also actively promoting their native stablecoins, such as TON and SUI, the launch of their on-chain stablecoins being the foundation for the thriving development of their DeFi ecosystems. For the sake of their own ecosystem development, major blockchains have no choice but to actively enter the stablecoin arena.
Technological Innovations Driven by the Bull Market
In 2024, stablecoin projects are blooming, and a key feature is that crypto-native projects are actively innovating in stablecoins. The proactive innovation of crypto-native stablecoins is driven by the bull market.
This year, a relatively typical project in terms of protocol and technological innovation is Ethena. The project officially launched in February 2024 and has cumulatively received $25 million in investments from Binance, Bybit, OKX, Dragonfly Capital, Brevan Howard Digital, PayPal Ventures and others.
Ethena mainly consists of three key components: USDe, sUSDe, and Internet Bonds.
USDe: A stablecoin based on Ethereum, collateralized by derivatives. Ethena allows users to create USDe using US dollars, ETH, or liquidity staking tokens as collateral.
sUSDe: Obtained through staking Liquid staking chips and earning rewards from funding rates. Initially 1 sUSDe = 1 USDe, but over time 1 sUSDe > 1 USDe.
Internet Bonds: Built on the foundation of USDe, combining yields from Ethereum and the price differentials from perpetual swaps and futures markets, creating the first on-chain crypto-native "bond" that can serve as a US dollar-denominated savings tool for users in jurisdictions that allow it.
The innovative aspect of this project is its stablecoin pegging mechanism. To maintain the 1 USDe = $1 peg, it has made three key settings, one of which is the collateral asset portfolio and Delta hedging mechanism. This is an innovative collateralization approach that allows USDe to maintain its peg to the US dollar. An equal amount of spot ETH long and futures ETH short positions constitute the collateral assets, and this collateral portfolio is designed to be "Delta neutral". (Delta measures the sensitivity of a derivative's price to changes in the underlying asset's price)
Under this setting, when the ETH price rises, the value of the spot ETH long position increases, but the value of the futures ETH short position decreases correspondingly, as the short position incurs losses when prices rise. Since they are equally sized, these two value changes offset each other. Similarly, when the ETH price falls, the value of the spot ETH long position decreases, and the value of the futures ETH short position increases, also offsetting each other. This allows the value of the collateral assets to remain relatively stable despite fluctuations in the ETH price, providing a stable value foundation for USDe.
It is thanks to this innovation, as well as its aggressive airdrops and marketing efforts, and the high annualized yield of sUSDe, that Ethena's TVL has grown rapidly since its inception, reaching a staggering $5.641 billion according to defillama data.
In addition to Ethena, there are other innovations, such as the launch of Lista, an open-source decentralized stablecoin lending protocol with the native token Lista. It allows users to stake and provide liquidity on Lista, and borrow lisUSD against various decentralized collaterals. The innovation of this project lies in providing a new solution to address the capital efficiency problem faced by over-collateralized stablecoins.
Traditional Financial Institutions Enter the Field
As the holy grail of cryptocurrencies, stablecoins have seen the emergence of new projects and innovations in each bull market. The biggest difference between the 2024 bull market and previous ones is the entry of traditional financial institutions or payment giants. This is due to the relaxation of regulations and the gradual integration of cryptocurrencies into real-life applications.
Two typical examples of traditional financial giants entering the field are the launch of the US dollar stablecoin PYUSD by the payment giant PayPal, and the acquisition of the stablecoin platform Bridge by the payment giant Stripe for $1.1 billion in 2024.
PYUSD is 100% backed by US dollar deposits, short-term US Treasuries, and similar cash equivalents. It was first launched on Ethereum in 2023 and then on Solana in May 2024. In terms of use cases, eligible US users can currently transfer PYUSD between PayPal and compatible external wallets, use PYUSD for peer-to-peer payments, choose PYUSD as a payment method at checkout, and convert PayPal-supported cryptocurrencies to PYUSD. PYUSD can also be used for cross-border P2P payments on Xoom, providing users with a faster and lower-cost remittance solution.
As early as October 10, 2024, Stripe officially announced that it would support USDC stablecoin payments, allowing users from over 150 countries to transfer stablecoins through Ethereum, Solana, and Polygon. In November 2024, Stripe launched a feature for B2B payments using stablecoins, allowing users to create and send invoices payable in supported stablecoins, meeting the demand for more efficient and lower-cost payment methods in cross-border transactions.
In Hong Kong, Standard Chartered Bank and JD Coin Chain Technology (Hong Kong) have also entered the Hong Kong dollar stablecoin market. The entry of traditional payment and financial giants undoubtedly enables stablecoins to be more widely used in the real world.
This year is the year of the stablecoin explosion, and looking to the future, with the clarification of regulations and continuous technological innovation, the role of stablecoins will become increasingly important, both on-chain and off-chain finance.
