Compliance with MiCA Regulations and Growing Demand for Stablecoins

Recently, Circle and SocGen's Forge made significant announcements regarding their adherence to the Markets in Crypto-assets Regulation (MiCA) in Europe. Circle's compliance with MiCA was promptly followed by SocGen's Forge, the issuer of Euro Convertible. MiCA, which became effective on June 30 in Europe, enforces a set of regulations on stablecoin issuers. These regulations encompass the publication of whitepapers, governance standards, management of reserves, and adherence to prudential norms.

Surge in Trading Activity for Circle's Stablecoins

Following the implementation of MiCA on June 30, Circle observed a notable surge in the daily trading volumes of its EURC and USDC stablecoins. Similarly, SocGen's EURCV, after easing its whitelisting restrictions, experienced an uptick in trading volume. However, the trading volume for EURCV remained relatively modest at just $4K, possibly attributed to its exclusive availability on Bitstamp exchange.

Market Transition Towards Compliant Stablecoins

Presently, the stablecoin market is largely dominated by non-compliant stablecoins, constituting 88% of the total stablecoin trading volume. The introduction of MiCA regulations has the potential to alter this landscape significantly. Exchanges and market participants are inclined towards compliant stablecoins over non-compliant counterparts. Notably, major cryptocurrency exchanges like Binance, Bitstamp, Kraken, and OKX have already taken steps to restrict and delist non-compliant stablecoins for their European clientele.

Growing Interest in Transparent and Regulated Alternatives

Over the past year, there has been a noticeable rise in the demand for transparent and compliant stablecoins, with USDC benefiting the most from this trend. In 2024, USDC witnessed a substantial surge in weekly trading volume, reaching $23 billion from $9 billion in 2023 and $5 billion in 2022. Consequently, USDC's market share surged to nearly match that of FDUSD, standing at 14%.

Centralized Exchanges Driving USDC's Volume Expansion

Reviewing the surge in USDC trading activity across decentralized exchanges (DEXs) and centralized exchanges (CEXs), it becomes evident that CEXs played a pivotal role in this growth. USDC's market share on CEXs notably escalated after Binance re-listed it in March 2023, soaring from an average of 60% to over 90% across all exchanges. Additionally, trading volumes witnessed an increase on Bybit, which initiated zero-fee USDC trading since February 2023.

Increased Adoption of USDC for Perpetual Futures Settlement

Another significant factor fueling USDC's prominence is its amplified usage for perpetual futures settlement. The proportion of BTC perpetuals denominated in USDC, traded on platforms like Binance and Bybit, increased to 3.6% from 0.3% in January. Notably, the usage of USDC in ETH perpetuals trading saw an even higher surge, with the volume of ETH-USDC trades rising above 6.8% from 1% at the beginning of the year. While USDC's market share in these perpetual markets remains a fraction of USDT's, its escalating adoption for perpetual settlement exemplifies investors' evolving preferences amidst the evolving stablecoin regulatory landscape.