Stablecoin Regulation: US Oversights Decline; Non-Licensed Exchanges Gain Ground

Concerns Over Declining Regulatory Oversight

According to a recent report by blockchain research firm Chainalysis, the United States government is on the verge of losing control of the stablecoin market. The latest report, released as part of Chainalysis’ North America cryptocurrency analysis, highlights a growing trend where non-licensed exchanges are gaining ground.

It reveals that many stablecoin transactions are now taking place through entities that don’t have regulatory licenses in the United States. Chainalysis’ assessment reveals a substantial shift in stablecoins volume from regulated platforms to non-licensed exchanges.

The report shows that since the spring of 2023, most funds flowing into the 50 largest cryptocurrency services have shifted from those licensed in America to those operating without licenses. This recent development raises questions about the government’s ability to regulate and oversee this crypto market aspect effectively.

The report added that stablecoins play an essential role in facilitating digital transactions, and ensuring their proper operation is critical to the virtual asset industry’s stability. Experts noted that the Chainalysis assessment underscores the importance of policymakers’ input and the need for regulators to oversee the stablecoin market appropriately.

According to them, failure to ensure effective regulatory scrutiny will have far-reaching implications for the broader crypto market.

Lost Opportunities

According to the report, as of June 2023, 55% of inflows from stablecoins are received by non-US licensed exchanges among the top 50 service providers. The study points out that the US government is gradually losing its grip on the stablecoin market in terms of regulatory oversights.

In addition, American users are missing out on the chance to interact with regulated stablecoin service providers. Furthermore, the Chainalysis report revealed that more US residents engage in stablecoin-related transactions with exchanges and service providers outside the country.

However, Chainalysis stated that the US Congress is debating stablecoin-related legislation, like the Clarity for Payment Stablecoins Act and the Responsible Financial Innovation Acts, to help boost the sector’s regulatory framework.

Meanwhile, current DefiLlama data shows that the total stablecoins’ market cap remains at $123.998 billion, down 0.16% in the last seven days, while USDT remains the number one stablecoin with a dominance of 67.77%.

North America’s Crypto Dominance

Notwithstanding the drop in stablecoin transactions in the US, on-chain data shows North America has seen a surge in crypto-based activities. Between July 2022 and June 2023, the region recorded nearly $1.2 trillion in transactions.

According to Chainalysis, North America accounted for 24.4% of the global transaction volume during the same period, outperforming the regions of Northern, Central, and Western Europe, with a combined $1 trillion in crypto transactions.

Furthermore, the region boasts the highest adoption rate for decentralized finance (DeFi). However, last November’s FTX collapse and the subsequent US banking crisis of March caused a significant decline in the region’s crypto activities.

Meanwhile, the report from Chainalysis reveals that North America’s crypto sector is driven by institutional players than any other region in the world, with 76.9% of transactions being $1 million and above.

Despite the continued regulatory enforcement in the United States, crypto activity is still high, per the Chainalysis report. The blockchain analytic platform quoted a recent statement by the US SEC’s head of the crypto and cyber unit, David Hirsch, who said the agency would intensify its crackdown on crypto exchanges and other entities.