Under Regulation: New Opportunities for Domestic Stablecoins

Author: Prathik Desai Source: tokendispatch Translation: Shan Oppa, Golden Finance

Funds can only truly function when they reach their destination. Salaries earned overseas can only be used to pay for domestic rent, tuition, utilities, and grocery expenses after going through banks, foreign exchange dealers, redemption partners, and local compliance checks. Before that, they are merely value in transit, not a medium of exchange.

The same issue is now appearing on-chain. Stablecoins facilitate global capital flows in the form of code, but their practicality depends on access scenarios, usage permissions, and reserve and redemption rules.

This perspective left a deep impression on me while studying the report “Beyond De-dollarization: The Rise of Local Currency Stablecoins” published by Dune.

In this quantitative analysis, I will analyze the core factors impacting the development of non-U.S. dollar stablecoins pegged to local currencies.

The Bite of Regulation

Nothing exemplifies the importance of regulation more than the fate of Tether’s Euro stablecoin (EURT). After the EU’s Markets in Crypto-Assets Regulation (MiCA) comes into effect in 2024, it almost directly tolls the death knell for Euro Tether.

As one of the earliest and once the largest non-U.S. dollar stablecoins, the circulation of EURT plummeted from over $400 million to about $50 million. As a result, the total circulation of global local currency stablecoins fell from $1 billion to $350 million.

Crypto enthusiasts often believe that code alone is enough. They issue tokens, inject liquidity, and expect the market to operate on its own. But non-U.S. dollar stablecoins are not abstract internet currencies; they aim to be superior digital versions of local currencies like the Euro, Yen, and Baht that can circulate on public chains without being constrained by bank operating hours. However, they must operate within various national financial systems, adhering to reserve requirements, licensing regulations, payment network rules, and redemption expectations.

The exit of EURT warns us: first-mover and scale advantages are not sufficient. Changes in local regulatory rules can easily erase first-mover advantages.

However, regulation is not entirely detrimental to stablecoins. If it were, the non-U.S. dollar stablecoin market would have been expected to stall after the suspension of EURT.

Excluding EURT, the total supply of non-U.S. dollar stablecoins has nearly doubled, increasing from about $350 million in January 2023 to $1.1 billion in February 2026.

Expanding the Market

During the same period, the number of addresses holding such stablecoins increased from about 42,000 to over 1.2 million.

Monthly transaction volume rose from $600 million to $10 billion, a 16-fold increase; the number of monthly transaction addresses grew 22 times, from about 6,000 to 135,000.

Both the growth rates of holders and transactors exceeded the growth rate of supply, indicating that the market continues to expand due to increased participation.

Thus, it can be seen that regulation does not always impact the market like it did with EURT; rather, it has attracted more stablecoin issuers and users.

Where Do Non-U.S. Dollar Funds Flow?

By early 2026, unclassified transfer transactions accounted for 38% of the total transaction volume of local currency stablecoins. This portion likely corresponds to payment and settlement activities, including peer-to-peer transfers and transfers from self-custody wallets to payment service providers.

Next, lending activities accounted for 29%, decentralized exchange (DEX) trading accounted for 17%, and centralized exchange (CEX) related capital movements accounted for 14%.

This structure indicates that non-U.S. dollar stablecoins mainly have two major uses on-chain: one is for payments, and the other is as circulating funds between individuals or businesses; they are also used for lending, trading, and other DeFi basic scenarios.

However, this data has a key premise: if we exclude Euro-pegged stablecoins, the market trends would be drastically different.

Euro stablecoins account for over 90% of the total transaction volume, and their usage is more akin to independent financial assets. Users deposit them into lending markets, use them for trading on decentralized exchanges, viewing them more as interest-bearing, collateralizable, on-chain cash that can circulate in DeFi, making local currency stablecoins appear more mature.

EURC, EURS, EURm, and EUROe, among other Euro stablecoins, have been integrated into DeFi yield protocols like Aave, Morpho, and Fluid. Excluding Euro stablecoins, the remaining non-U.S. dollar digital currencies are primarily used for settlement infrastructure.

Nearly 80% of non-U.S. dollar, non-Euro stablecoins flow into unclassified transfers, primarily including wallet fund transfers, enterprise debt settlements, quasi-cross-border remittances, and payments completed through service providers.

The dominant position of Euro stablecoins among non-U.S. dollar stablecoins indicates that the next phase of growth is more likely to concentrate on basic DeFi scenarios. Non-U.S. dollar stablecoins outside of the Euro will first serve as the infrastructure for local funds circulating on digital rails before entering DeFi application scenarios.

This growth is crucial, as it will cover scenarios such as salary payments, fund management, merchant settlements, cross-border remittances, and foreign exchange conversions.

The regulatory levels in these areas are much higher than in basic DeFi scenarios, as operational funds cannot tolerate ambiguous rules like speculative assets. If tokens need to operate within local payment systems, fund management processes, and high-compliance environments, they must have predictable reserves, clear redemption processes, and defined legal statuses. Therefore, regulation will play a key role in the popularization of non-U.S. dollar stablecoins.

This also explains why growth occurs in regions with mature financial systems. The report notes that activities related to Brazilian Real (BRL) and Japanese Yen (JPY) stablecoins accelerated significantly after local regulatory frameworks were improved; while markets like Indonesia, which lack specific regulatory systems, lag in development.

I also believe that non-U.S. dollar stablecoins hold economic value.

Cross-border payments still face high conversion costs, and cross-border remittances incur substantial losses from exchange rate differences and intermediary institutions. More local currency stablecoins can reduce the need for funds to be converted through the U.S. dollar before reaching their destination, lowering exchange costs and eliminating settlement friction, allowing businesses and individuals to hold and use the currency for their income, spending, and savings.

Their potential extends far beyond the DeFi domain. Euro stablecoins have set a benchmark for integrating local digital currencies into the financial system. From a global perspective, reducing the cost of cross-border capital flows, improving efficiency, and decreasing dependence on the U.S. dollar will yield far-reaching value.

Issuers that make local currencies easier to transfer, settle, and integrate into existing payment infrastructures will benefit from the enormous potential of non-U.S. dollar stablecoins. If an environment conducive to popularization can be established, the integration of DeFi will come naturally.