An article to understand the “Stablecoin Report” issued by the Biden administration

The tense situation of stablecoin regulation has been brewing for some time in the United States. Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), has always advocated the regulation of stablecoins (the SEC considers securities) and more regulation of the entire crypto market. 

Currently, the Commodity Futures Trading Commission (CFTC) is responsible for overseeing fraud in the crypto derivatives market and the underlying spot market. But the encrypted spot market still has no federal agency responsible for supervision. 

The market value of stablecoins this year has reached 120 billion U.S. dollars. The “Stablecoin Report” released by the President’s Financial Markets Working Group on Monday may change the status quo of stablecoins.

Treasury Secretary Janet L. Yellen believes: “The current supervision is inconsistent and fragmented, and some stablecoins are actually beyond the scope of supervision.”

Currently, stablecoins support the transactions of other cryptocurrencies, but in the future they can be used as a broader means of payment. However, she added that the lack of proper supervision creates risks for users and the economy, including unstable operations, interruption of the payment system, and the possibility of economic power concentration.

The Biden administration’s “Stablecoin Report” recommended Congress to legislate to ensure that stablecoins are subject to a “consistent and comprehensive” federal framework. “Stablecoins or certain parts of stablecoin arrangements may be securities, commodities and/or derivatives”, which indicates that the SEC and CFTC may have jurisdiction over stablecoins . 

The report urged Congress to allow stablecoin issuers to accept the same level of regulatory review and legal obligations as banks. In order to reduce the risk of stablecoin operation, the government proposes to require stablecoin issuers to become “deposited institutions” -all other entities will be prohibited from issuing stablecoins. A stable currency run is similar to a bank run, when a customer starts to withdraw funds because they are worried that the bank (stable currency in this case) may fail, but finds that the stable currency issuer does not have enough funds to return the investor’s funds. 

Assume that stablecoin operations may happen because they are not 100% backed by cash-most stablecoins are only partially backed by cash and the rest are backed by commercial paper.

In order to address concerns about the stability of stablecoin payments, the report calls on custodial wallet providers to also accept supervision . In addition, all entities that perform functions and activities related to stablecoins must meet risk management standards supervised by federal regulatory agencies.

In order to reduce systemic risks and the concentration of economic power, “legislation should require stablecoin issuers to comply with activity restrictions that restrict affiliation with commercial entities . ” Regulators should also have the power to develop standards that promote interoperability between stablecoins. In addition, Congress should set standards for custodial wallet providers, such as restricting their affiliation with commercial companies and their use of customer transaction data. 

Although Congress is considering legislation, regulatory agencies including the SEC and CFTC will use their own capabilities and existing jurisdiction to ensure that stablecoins comply with existing laws and legal obligations. Before Congress introduces a new law, the Financial Stability Oversight Board should consider the risks highlighted in the report . 

In addition, in order to prevent stablecoins from being used to fund illegal financial and terrorist activities, the US Treasury Department will continue to encourage countries to implement international anti-money laundering standards in the Financial Action Task Force (FATF). Just last week, the FATF issued updated guidelines on virtual assets and virtual asset service providers to guide countries on how to implement their encryption regulations. The FATF report stated that stablecoins are virtual assets and therefore should be regulated against the risks of anti-money laundering and terrorist financing. 

Although the scope of the Presidential Working Group’s “Stablecoin Report” is limited to stablecoins, it continues to work with regulators to determine the supervision of the entire crypto market. 

Matthew Gould, co-founder and CEO of Unstoppable Domains, a blockchain domain name provider that supports stablecoins and other encrypted assets, believes that: “This is the type of regulation we expect as part of the crypto industry. Any claim to be backed by U.S. dollars Everyone who owns the tokens needs to have U.S. dollars in the bank, not just any bank, it must be a bank regulated by the United States. ” 

“The problem lies in the details, but on the surface, this proposal is reasonable, and it is likely to bring a brand new company to the stable currency field-banks. The United States has decided to lean towards the crypto industry, and it seems that they want to help banks in this The development of the field clears the way,” he added.

Posted by:CoinYuppie,Reprinted with attribution to:
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