Last Updated on August 10, 2023 by Bitfinsider

While the announcement of PayPal’s stablecoin this week was highly applauded by the industry, the supply of the asset class has been dropping for more than a year.

Total stablecoin supply has been falling since the middle of 2022 and supply has dropped roughly 12% in 2023, from $139 billion at the start of the year to $122 billion in August.

Some observers believe the downturn is set to end, especially with PayPal’s entry into 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,” said Shipyard Software CEO Mark Lurie. “If Paypal is serious about using stablecoins, it could be a major catalyst for stablecoin adoption.”

Meanwhile, regulatory systems appear to be preparing for an increase in stablecoin use.

The US Federal Reserve said in a letter to state member banks interested in “issuing, holding, or transacting in dollar tokens to facilitate payments,” that banks must demonstrate sufficient procedures to cope with liquidity and illicit finance issues.

The central bank issued new guidelines on Tuesday to improve its oversight of banks involved in stablecoin operations. The Fed’s “Novel Activities Supervision Programme” aims to improve oversight of all banking organisations it regulates, with a focus on crypto, distributed ledger technology, and “technology-driven partnerships with nonbanks to deliver financial services to customers.”

The UK Treasury also issued a consultation response on Tuesday, updating suggestions for a regulatory regime for systemic stablecoins. The framework outlined how the Bank of England and the Financial Conduct Authority would collaborate to monitor stablecoin issuance and use.