Tether’s Stablecoin Dominance May Wane Following Proposed U.S. Rules: S&P

In simpler terms, the US regulatory clarity on stablecoins could encourage traditional banks to join this market and potentially weaken Tether’s USDT dominance, according to S&P Global Ratings. A stablecoin is a digital currency that functions as a stable anchor in crypto markets. Last week, two US Senators proposed a bill to regulate how stablecoins function within the country. While most stablecoins are pegged to the US dollar, their issuers aren’t heavily regulated under current US laws. However, this could shift with the new Lummis-Gillibrand Payment Stablecoin Act, which may give banks a competitive edge by limiting non-bank institutions to a $10 billion issuance limit.

According to data from CoinDesk, the market capitalization of Tether’s USDT is approximately $110 billion, making it the third-largest cryptocurrency in existence. Circle’s USDC follows closely behind with a market cap of around $34 billion. Both of these stablecoins are linked to the value of the U.S. dollar.

If the stablecoin legislation is approved, it could significantly advance institutional innovation within the blockchain sector, specifically for tokenization and digital bond issuances that include on-chain transactions, according to O’Neill. He further mentioned that an increase in institutional usage of stablecoins would present opportunities for banks as issuers, potentially challenging Tether’s market dominance in the global stablecoin landscape.

Removing the SEC’s rule that custodians report digital assets on their balance sheets may allow new businesses to enter the market and offer digital asset custody services. This increased competition could result in better deals for customers.

Previously, S&P has expressed concern that USDT, unlike its competitors, struggles to effectively maintain its value at the $1 mark, which is a fundamental responsibility of a stablecoin.