Stable Coin Crackdown Coming?

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643 words


Stable coins were in the scope for quite some time. Now, U.S. regulators have finally released their report on Stable Coins and the recommendations it contains could crush certain Stable Coins if they these recommendations are put in place. In this article we will look at what the report says, which stable coins are at risk and what it could mean for the crypto space.

The Report’s Recommendations

I don’t want to bore y’all with the specifics and details of this report and come straight to the recommendations because this is what would interest me the most. First and foremost, the recommendations presented in this report are focused on the prudential risks which are identified in the area of payment stable coins. In terms of specifics the report says: “[…] legislation should limit stablecoin issuance, and related activities of redemption and maintenance of reserve assets, to entities that are insured depository institutions.” Currently, the only federal insured Stable Coin issuer is PAXOS and Circle will soon be following. On the other hand Tether will not be able to meet this requirement.

Furthermore, the reports says that “Insured depository institutions include both state and federally charted banks and savings associations, the deposits of which are covered, subject legal limits, by deposit insurance, and which have access to emergency liquidity and Federal Reserve services.” Additionally, all of these issuers will be “subject to supervision and regulation”. This all sounds like the Federal Reserve will work closely with Stable Coin issuers, something that Circle explicitly mentioned that it intends to do as part of its plan to become a bank. Some people even think that USDC is preparing to become a CBDC.

What is especially concerning is “Congress should provide the federal supervisor of a stablecoin issuer with the authority to require any entity that performs activities critical to the functioning of the stablecoin arrangement to meet appropriate risk-management standards […]”. This is a problem because crypto currency blockchains and cryptocurrency wallets arguably play a critical role in the function of stablecoins. In my opinion this shows that the government is all about control and that it is one of the biggest concerns they have about crypto. To be honest, I think that with these measurements a lot of scams could be shut down so it would not be the worst in the world. On the other hand, crypto would lose some of its advantages.


So what could be the effects on the crypto market if these regulations come into play? Firstly, it is important to mention that in the work group that made this report were a lot of pro crypto participants. This is the main reason why these regulations don’t seem as harsh as expected. This leads me to believe that these stablecoin regulations will not be so bad when everything is said and done. However, this assumes that politicians in the congress will act in a timely manner because otherwise the Financial Stability Oversight Council may step in and this could result in more heavy handed regulation.

Furthermore, the project that is at most risk is Tether and on paper a crackdown of Tether would crash the crypto market. In practice though we could see a migration to more robust stable coins and there would be some arguments and indicators that this has already begun. This could mean that the crypto space could possibly absorb a shock of an all-out attack and maybe not crash towards zero like in everybody’s nightmares. The biggest drawback of this report is actually the possible KYC that might be implemented. Like I mentioned before it would take away some advantages that crypto has. Looking on it from the other side this would give crypto a better adoption and acceptance rate.

Published by ga38jem on
On 16th November 2021

Posted Using LeoFinance Beta