The U.S. Office of the Comptroller of the Currency (OCC) issued a statement earlier this week saying that national banks can provide services to stablecoin issuers in the U.S.
This is not a surprise, as banks have been doing so for some time. But they have been doing so under a cloud of regulatory uncertainty. The statement gives the first sign of official clarity on the idea that stablecoins are legitimate representations of value.
Why is this significant for markets?
To start with, it signals a growing regulatory acceptance of stablecoins. While fiat-backed blockchain-based tokens have been often talked about in the halls of power, especially after Facebook’s stablecoin project Libra was announced last year, they had not been recognized in an official statement as an acceptable result of financial innovation – until now.
And the U.S. is not the only significant economic bloc to signal acceptance: Earlier this week, the European Central Bank (ECB) issued a report that assesses the threats stablecoins could pose. But rather than hint that stablecoins might be in trouble, the report conveys that the ECB is figuring out how to mitigate the potential risks.
The issue was becoming urgent, given the explosive increase in stablecoin demand. The total value of stablecoins has now surpassed $18 billion, up from $10 billion just four months ago. Much of this growth has been driven by international demand for dollars as well as the increasingly sophisticated financial tools being built on top of public blockchain technology. USDC, the leading U.S.-based stablecoin, has seen its market cap almost quadruple so far this year, to over $2 billion.