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A consortium of major players in both traditional finance and cryptocurrency, including Robinhood, Galaxy Digital, Kraken, and Paxos, is rallying behind a new USD-pegged stablecoin initiative aimed at changing the stablecoin market.
In a recent announcement, Paxos, the blockchain infrastructure firm spearheading the effort, introduced the Global Dollar (USDG), a stablecoin pegged 1:1 to the U.S. dollar and currently operating on the Ethereum blockchain.
USDG hopes to challenge the status quo in the stablecoin market, long dominated by Tether’s USDT and Circle’s USD Coin (USDC). Together, these stablecoins account for nearly 90% of the total market capitalization, according to data from CoinGecko.
“The lack of competition in the regulated stablecoin market has prevented the industry from reaching its full potential,” Arjun Sethi, Co-CEO at Kraken, said in a statement.
“USDG upends this dynamic with a more equitable model that will bring mainstream participants into the ecosystem and accelerate new stablecoin use cases.”
Industry Leaders Launch “Global Dollar Network”
The USDG stablecoin is launched by the “Global Dollar Network,” an open, consortium-led network designed to drive the adoption of stablecoins and improve the range of use cases within the digital finance ecosystem, said Paxos.
While available initially on Ethereum, Paxos said it plans to extend USDG’s reach to other blockchain networks as regulations permit, to strengthen its cross-platform utility.
Paxos will issue the USDG stablecoin out of Singapore, which the firm says is “substantively compliant” with the Monetary Authority of Singapore’s upcoming stablecoin framework, established in August 2023.
[1 / 4] Today, we’re launching Global Dollar Network (@global_dollar ) — an open network to accelerate and reward global stablecoin adoption. Additional partners include @Anchorage, @Bullish, @galaxyhq, @krakenfx, @Nuvei and @RobinhoodApp.
View the press release ⬇️…
— Paxos (@Paxos) November 4, 2024
The project is in partnership with DBS Bank, one of Singapore’s largest financial institutions, which will manage USDG’s dollar reserves, and will be backed by short-term U.S. government securities, cash equivalents, and dollar deposits.
The team said the governance structure of USDG will be a consortium-driven approach that includes representatives from supporting firms, such as Anchorage Digital and Nuvei.
USDG plans to share income from its reserves with consortium members. This is in contrast to Tether and Circle, which both retain the interest generated from their stablecoin reserves.
“Global Dollar Network will return virtually all rewards to participants and is open for anyone to join,” Charles Cascarilla, CEO of Paxos, said. “It is designed to incentivize global stablecoin usage and accelerate societal wide adoption of this technology.”
Cascarilla said that member firms will be rewarded based on their contributions to growing the ecosystem.
Stablecoin Market Becomes Competitive
The USDG stablecoin arrives at a time when the stablecoin market is becoming increasingly competitive.
Payment giant Ripple is preparing to launch its own dollar-pegged RLUSD stablecoin. The stablecoin will be available to customers and institutions on global exchanges and wallets including Uphold, Bitstamp, Bitso, MoonPay, Independent Reserve, and more.
In addition, Stripe recently expanded its footprint in the stablecoin arena through the acquisition of Bridge, a stablecoin provider. The deal came less than two weeks after Stripe introduced stablecoin payments on its main payments user interface by integrating USDC stablecoin.
Robinhood, which is already part of the USDG initiative, is separately exploring the possibility of launching its own stablecoin.
British fintech company Revolut is eyeing the stablecoin market as the industry continues to expand.
Visa has also launched a platform for banks to issue fiat-backed tokens such as stablecoins and tokenized deposits. The product, which will be known as the Visa Tokenized Asset Platform or VTAP, will allow banks to “mint, burn and transfer” these tokens.
Interest in stablecoins from mainstream financial institutions has grown after the European Union introduced stringent regulations governing their circulation.
The European Union’s Markets in Crypto-Assets (MiCA) regulation, introduced in 2023, establishes a comprehensive framework for the stablecoin market, dividing its implementation into two phases.
The first phase, completed on June 30, set rules on stablecoin reserves, transparency, and transaction volume limits. These rules led to major exchanges like Binance and Kraken to evaluate their stablecoin offerings to ensure compliance.
The second phase of MiCA, which comes into effect on December 30, extends the regulatory framework to crypto-asset service providers, including exchanges, wallets, and other entities dealing with stablecoins.
Under these new rules, stablecoins face strict limits, such as a $200 million cap on daily transactions for payments.
The regulation also enforces reserve requirements, mandating that 60% of stablecoin reserves be held in cash deposits across multiple banks — a condition that some in the industry find challenging due to limited banking options for such assets in Europe.
The Bottom Line
The stablecoin market is becoming more competitive as growing regulatory clarity encourages mainstream financial institutions and technology firms to participate.
Specifically, the recent launch of USDG by a powerful consortium, which includes major crypto and financial players, is set to challenge the status quo in a market that has long been dominated by Tether’s USDT and Circle’s USDC.
Back in the 1990s, there were occasional commentators who would say: “There’s probably only a need for 50 or 60 websites”. We wonder if stablecoins will go through a similar explosion, with hundreds or even thousands of stablecoins serving different purposes.
