In June 2020, the value of the crypto stablecoin industry was $10 billion. Five years later, it’s now a $250 billion industry. That makes stablecoins one of the fastest-growing areas of the crypto market right now.
In fact, stablecoins have grown so fast and have become so popular that they have attracted the attention of Congress, which is looking for ways to regulate them. There are now two competing pieces of legislation, one in the House and one in the Senate, and the goal is to have a final bill passed before the end of the summer.
For crypto investors, this new legislation could have important consequences. In theory, it should make stablecoins much more approachable for the average investor. And it will help to define how stablecoins fit into the world of traditional finance. If Congress is interested in this new stablecoin trend, then you need to be aware of it as well.
Before digging into the new stablecoin legislation, it’s important to understand what stablecoins are, and how they work. Most stablecoins are pegged 1:1 to the value of the U.S. dollar. As a result, many refer to them as “digital dollars.” In theory, you can always exchange $1 worth of stablecoins for $1 in cash. That’s what makes them so valuable: They are the easiest way to move between the worlds of traditional finance and blockchain finance.
Right now, two stablecoins — Tether(CRYPTO: USDT) and USDC(CRYPTO: USDC) — account for approximately 85% of the value of the stablecoin market. But there are plenty of new, up-and-coming stablecoins, including one that has been issued by World Liberty Financial, the crypto venture affiliated with the Trump family.
To give you an idea of just how big stablecoins have become, of the top 50 cryptocurrencies (as ranked by market cap), five of them are now stablecoins. The easiest way to spot them is by looking for cryptos trading at a price of exactly $1.
In order for stablecoin legislation to be signed into law by President Trump later this summer, congressional lawmakers need to settle their differences about what should be included in the final bill.
Image source: Getty Images.
At the beginning of this year, this seemed like an easy thing to do. But if you’ve been following all the ruckus around the “Big, Beautiful Bill,” it is now obvious that getting the House and Senate to agree on anything these days is challenging. When you add in the fact that a Trump-affiliated crypto venture (World Liberty Financial) is now an emerging player in the stablecoin industry, things get even more complicated.
According to Rep. French Hill (R-Ark.), the Chairman of the House Financial Services Committee, there are three major points of contention around stablecoins that need to be ironed out between the two chambers.
The first involves the oversight of foreign issuers of stablecoins. Legislators want firm assurances that foreign stablecoin issuers will be held to the same strict standards as U.S. stablecoin issuers. This is important because Tether, the world’s largest stablecoin issuer, is not based in the United States.
The second involves who has the authority to regulate these stablecoins at both the state and federal levels. Just a year ago, the obvious choice at the federal level would have been the SEC. But it now looks like another regulatory body might get the nod.
The third involves who has the right to issue stablecoins. Historically, there has been a firm dividing line between banking and commerce in the United States. Banks and other financial services firms should be able to issue stablecoins, right? But can Silicon Valley tech companies issue stablecoins? And can entities affiliated with political figures issue stablecoins?
If you are interested in investing in stablecoins, there are several potential strategies to pursue. The most straightforward approach is to invest in stablecoin issuers themselves. The obvious choice here is Circle Internet Group(NYSE: CRCL), which went public on June 5. Circle is the company behind USDC, the second-largest stablecoin in the world.
Or, you might decide to focus on publicly traded companies that are moving aggressively into stablecoins. For example, in August 2023, PayPal(NASDAQ: PYPL) launched a new stablecoin called PayPalUSD(CRYPTO: PYUSD), which is currently valued at $1 billion.
You could also decide to focus on cryptocurrencies with “companion” stablecoins. For example, Ripple, the company behind the XRP(CRYPTO: XRP) token, issued a companion stablecoin called Ripple USD(CRYPTO: RLUSD) in December 2024. The goal was to spur activity on the XRP blockchain, thereby boosting demand for the XRP token.
And, of course, you could invest in stablecoins themselves. This might sound a bit odd at first. Why would you take $1 and invest it in an asset that will always trade for $1? However, new stablecoin yield strategies are exploding in popularity. As a result, you might be able to earn more on that “digital dollar” than on dollars sitting in your bank account.
While stablecoins might sound confusing, they are now one of the fastest-growing areas of the crypto world, and can no longer be ignored. With new stablecoin legislation scheduled to be signed later this summer, it should create even more momentum for the top players in this emerging space.
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Dominic Basulto has positions in Circle Internet Group, USDC, and XRP. The Motley Fool has positions in and recommends PayPal and XRP. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.
