Stablecoin supply continues to drop despite wider adoption signals

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.