Stablecoins are setting off a storm. The era of regulation may come

During a live-streamed hearing on May 10, U.S. Treasury Secretary Janet Yellen called for stablecoin legislation to be passed by the end of the year and highlighted the risks surrounding TerraUSD (UST), saying: The stablecoin (UST) went through a crash and depreciated. I think it just goes to show that this is a fast-growing product, and there are risks of fast growth… There are risks to financial stability, and we need a proper framework.” In response to a question from Republican Sen. Pat Toomey (R-PA) on stablecoins, Yellen said it was “very important, even urgent,” for Congress to pass stablecoin legislation, and further said that it would be “very appropriate” for Congress to do so by the end of the year. “.

Today, Bitcoin once fell below the $30,000 mark. The collapse of the largest blue-chip currency in the cryptocurrency led to the decline of a series of altcoins. Among them, the price of Luna token fell sharply, causing the decoupling of the stablecoin UST, and the butterfly effect of accumulation led to a slow death cycle. Up to now, according to Bittui terminal data, the market value of UST is less than 16 billion US dollars, and before that, the market value of UST once reached 20 billion US dollars, becoming the third largest stable currency of cryptocurrencies, and successfully ranked among the top ten cryptocurrencies. .

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As of now, according to data on coinmarketcap, four stablecoins have appeared in the top ten cryptocurrencies by market capitalization, namely: Tether (USDT), USDC , BUSD , and UST. The total market capitalization of stablecoins has reached over $180 billion. The chart below shows the change curve of the market cap of the top ten stablecoins from January 2017 to April 2022:

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From the above figure, we can see that the market value of stablecoins will grow exponentially in 2021, and stablecoins have become one of the most common and practical value media in the current crypto market. In the early days of the development of the crypto market, the basic asset in the eyes of investors was Bitcoin, and other cryptocurrencies needed to be exchanged with Bitcoin. However, the huge volatility in Bitcoin’s early days led to greater exposure for crypto investors. With the emergence of Ethereum and the development of its ecosystem, in order to meet the needs of more investors for risk control and exit, stablecoins appear. It can be considered that the emergence of stablecoins has further promoted the rapid development and rise of the crypto market.

Problems in Stablecoins

The issue that stablecoins are not stable enough has been mentioned by regulators many times. Regulators are worried that the stablecoins that have sprung up like mushrooms, most of which are pegged to the US dollar, may plant the seeds of instability in the overall financial market. The effects may be more immediate than the volatility of blue-chip cryptocurrencies.

What worries regulators is which assets the stablecoin uses as reserves to achieve its promised 1:1 peg to the U.S. dollar. It’s not just dollar cash, as many might think, but a combination of commercial paper, notes, bonds, and loans.

Credit rating agency Fitch has noted, “We believe it is unlikely that authorities will intervene to rescue stablecoins in the event of a disruptive event, in part due to moral hazard. If the redemption of stablecoins leads to or amplifies broader commercial paper (CP) ) selling, weighing on market liquidity and hindering the issuance of new CPs, authorities may step in to support traders and major money market funds.”

The problem that stablecoins can cause is not just a decoupling from the value of the dollar, but a series of selling pressures that could lead to a series of selling pressures on the assets behind them after decoupling, resulting in more severe market volatility. To put it simply, a stablecoin with a market value of $180 billion is backed by assets worth $180 billion. And that $180 billion in assets is the crux of the bigger problem.

Embrace and Prohibit

On July 19, 2021, U.S. Treasury Secretary Yellen met with the heads of several federal agencies to discuss stablecoin regulation. Participants discussed the rapid growth of stablecoins, their potential use as a means of payment, and ultimately Potential risks to users, financial systems and national security. According to the minutes of the meeting, Yellen emphasized that swift action is now necessary to ensure that stablecoins have an appropriate regulatory framework in the United States.

The Group of Twenty (G20) finance ministers and central bank governors have also discussed the development and supervision of stablecoins many times. At the meeting of G20 finance ministers and central bank governors held in early July 2021, all parties agreed to implement the G20 roadmap for improving the cross-border payment system, looking forward to discussions on central bank digital currency-related issues, and stressed that global stablecoins need to comply with relevant legal and regulatory requirements.

Of course, there is still no mature solution for the regulation of stablecoins. However, the contribution of stablecoins in cross-border remittance, B2B/B2C, and digital economy should not be underestimated. Stablecoin solves the complex and cumbersome problem of cross-border remittance process, and greatly simplifies the transfer/payment process. In the future development and transformation of the digital economy, stablecoins may gain massive enterprise-level adoption.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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