Tuesday, August 16

Stablecoin issuers poised to be the banks of the future on the path to adoption

There is no denying the fact that the cryptocurrency market has strengthened over the course of 2021, as best highlighted by the total industry capitalization recently. hitting the $ 3 trillion mark, albeit for a relatively short period of time.

That said, stablecoins, a class of cryptocurrencies that have their value pegged to a fiat currency, have seen their use increase dramatically in recent months thanks in large part to their ability to help investors get their feet wet with digital currencies while eliminating many. from core issues, such as daily price volatility, currently plaguing the crypto market.

Since 2020, the stablecoin sector has expanded by a staggering 500%, growing from a total market capitalization of around $ 20 billion to more than $ 125 billion. As you can imagine, this monumental rise has not gone unnoticed by regulators globally, so much so that the Biden administration is actively seeking to devise a bank-like regulatory setup for stablecoin issuers.

And even though digital currency supporters are known for their anti-regulatory outlook, stablecoin issuers like USD Coin (USDC), Circle CEO Jeremy Allaire, recently. I take a supportive stance on the issue. In a recent interview, he said that proposals to regulate issuers of stablecoins in the United States at the federal level signify progress for the growth of the industry. “There is real recognition that as these payment stablecoins grow, they could grow to the Internet scale relatively quickly,” Allaire said.

Are regulations the way forward?

In contacting Circle, a company spokesperson told Cointelegraph that the firm has long been a full supporter of the US Congress establishing federal oversight for stablecoin issuance, adding:

“The rapid scaling and strategic importance of this for the competitiveness of the dollar in the age of cryptocurrencies and blockchains is critical. We also know that, as with the creation of the internet, it is only through rigorous collaboration between the public and private sectors that people everywhere will be able to tangibly benefit from public blockchains. “

The spokesperson said Circle will continue to welcome any regulations that help make consumers and businesses safer while supporting innovation and development that enhance economic competitiveness and national security. “We believe this can lead to a radically more efficient, safer and more resilient financial system,” they said.

Ryan Matovu, CEO and founder of Ardana, an asset-backed stablecoin protocol based on Cardano and a decentralized exchange, told Cointelegraph that as requests for regulations continue to gain momentum, there must be an acknowledgment of different coin models. stable in space and the spectrum of decentralization along which they exist. He said:

“Regulation on centralized custodian-type stablecoins makes sense, since they operate within the traditional financial space of holding fiat US dollars in accounts. Decentralized stablecoins fall outside of this and those that exist as purely on-chain assets should be treated as peer-to-peer platforms rather than ‘issuers.’

Is supervision a foregone conclusion?

Steven Parker, CEO of cryptocurrency wallet app Crypterium and former CEO of Visa’s Central and Eastern Europe network, told Cointelegraph that there is absolutely no future stablecoin environment that doesn’t end in regulations that are, at least , on par with the rules that govern banks. are subject to today.

He noted that Sir John Cunliffe, Deputy Governor of the Bank of England, recently commented that the continued growth and use of digital currencies could lead to a major financial meltdown. Parker added:

“The reaction of politicians to Libra, now Diem, a form of stable currency, was swift and had a major regressive step in its implementation. Anyone who thinks that regulators will simply allow a new, unregulated currency to take a leadership role in economic finance is unfamiliar with how financial regulation works. There is a battle for control of regulation, but once that is resolved, stablecoins and their creators and managers will be strictly regulated. “

Not everyone is convinced of the need for increased regulations. Steve Gregory, CEO of the US affiliate of trading platform Currency.com, told Cointelegraph that not all stablecoins are created equal and, unlike banks, they are not backed with the full faith and credit of a nation. sovereign like the United States.

That said, the exponential growth rate of stablecoin adoption seems to indicate that the market is not in phase because of lax regulation around stablecoins, Gregory noted, adding:

“Ultimately, like how crypto exchanges work, in the future there will be two types of stablecoin issuers: those that deliberately take advantage of regulated jurisdictions and offer transparent accounting, clear rules for swapping, and protections for traders. investors in a single basket, and vice versa. There will be other issuers that have a solid secondary market but that continue to operate without clear rules that can be synonymous with financial institutions. “

Gregory said that the first basket will be the likely venue for regulated financial institutions engaged in crypto-specific financial products and the latter will be more for cross-border trading from countries with strict currency controls, peer-to-peer markets, and access to offshore exchanges. . .

Lastly, in terms of how the stablecoin market would be best governed, Gregory believes that the free market should run its course, something that will allow regulated stablecoins to find their place in the global economy and grow accordingly. He believes that unregulated stablecoins will continue to grow and evolve into their own niche: “In general, it is a global asset class, and different regulations in each particular country make it difficult to shape the usefulness of stablecoins in a framework. regulatory “.

The road ahead

As part of its future plans, it appears that the Biden administration is looking to come up with a new “special purpose card” for stablecoin issuers, which will effectively place them in the same category as banks. In this regard, Allaire believes that the details of a bank charter for a crypto company need to be worked out over time for the rules to make sense for players operating in this evolving space.

It’s also worth noting that, over the course of the past few months, stablecoins have become a central topic of conversation for regulators. In September, the US Treasury held a series of meetings to delve into the risks stablecoins pose to their users, as well as to the financial system in which they operate.