Crypto exchanges enter stablecoin race as Tether’s dominance slips

Crypto exchanges are increasingly entering the stablecoin market because they want to release their own digital dollar substitutes. After changes in regulations in Europe led to Tether’s USDT being delisted, exchanges such as Kraken and Crypto.com are taking the opportunity to launch their stable assets.

A source with knowledge of the situation says Kraken is looking to build a U.S. dollar-pegged stablecoin through its Irish entity. 

The action comes as global regulation is tightening in the EU, which, as we noted earlier, has ordered exchanges to remove stablecoins that don’t comply with the regulations, including the most popular USD Tether (USDT), by March 31. 

Though Kraken said it will auto-convert any non-compliant holdings into another stablecoin, the exchange’s proprietary token is in early development. It likely won’t be ready by the deadline.

Kraken has participated in stablecoins before. It also became a member of the Global Dollar Network consortium, which launched USDG with Paxos last year. Other consortium members, like Robinhood and Galaxy Digital, are also exploring stablecoin initiatives.

Crypto.com prepares stablecoin launch as Europe’s regulations reshape the market

Crypto.com also unveiled ambitions for a stablecoin project, aiming for a Q3 2025 launch. Meanwhile, the exchange is working to replace the liquidity lost with Tether’s exit from Europe by making sure its new digital asset will comply with Europe’s strict regulatory framework, sources say. A spokesperson for Crypto.com did not provide a specific release date.

Offering a stablecoin in Europe is more complex than it used to be, thanks to EU rules introduced last year that require issuers to hold an electronic money license in at least one member state. Only a few have taken this route so far, with Circle acquiring its license to run USDC in the bloc last summer. 

Tether, whose USDT is the world’s largest stablecoin at $142 billion, has yet to secure the same permissions and has criticized the EU’s rules as too strenuous.

Tether’s market dominance is slowly waning, its share dropping from 70% in December to around 63%, said DeFiLlama. With USDT being progressively delisted and facing increasing competition from new issuers, the market is ready for it.

Exchanges forge partnerships as stablecoin competition intensifies

Rather than their own stablecoins, some exchanges are taking a more strategic partnership approach.

USDC has become the preferred alternative among exchanges seeking preferred options. Late last year, Coinbase, which holds a revenue-sharing agreement with Circle, proactively delisted Tether and other non-compliant tokens in Europe in favor of USDC.

In December, Binance also partnered with Circle, pledging to make it more readily available to users on the exchange.

At the same time, some exchanges are retreating from stablecoin plays. Gemini also once considered expanding GUSD to Europe but has since retreated.

Even under regulatory scrutiny, issuing stablecoins is still a lucrative business. Issuers make a nice yield on the reserves backing their tokens. Tether, for instance, reported $13 billion in unaudited profits last year.

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