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The stablecoin market is an important link between cryptocurrencies and traditional currencies. It is facing calls to strengthen supervision. Regulations on both sides of the Atlantic lag behind the rapid growth of digital assets.
Stablecoins claim to be a safe haven for traders to hide funds, making them a core part of cryptocurrency trading, similar to the way typical investors use money market funds.
With the rapid development of the market with the broader digital asset industry, the intricate disclosure standards, the overall lack of consumer protection, and the potential role of stablecoins as a more difficult to trace form of currency have intensified calls for stricter supervision .
“Of course, the direction of travel is to consider regulating it,” said John Salmon, who is in charge of the blockchain and cryptocurrency business of the law firm Hogan Lovells.
Policymakers in the United States, the United Kingdom, and continental Europe are weighing possible plans to strengthen the supervision of stablecoins, which are “linked” to fixed exchange rates, commodities or other digital assets to reduce volatility. Most stablecoin issuers stated that their coins are fully backed by reserves (usually traditional currencies or cryptocurrencies).
A group of U.S. congressmen at the end of last year Proposed legislation This will require stablecoin issuers to obtain a bank charter, comply with banking regulations, and obtain approval from the Federal Reserve and the Federal Deposit Insurance Corporation.
“The value of digital currency is permanently pegged or stabilized with traditional currencies such as the U.S. dollar, and is facing new challenges in terms of regulation. [they] The organization also includes Rashida Tlaib in the House of Representatives and Stephen Lynch in the House of Representatives.
What is a stable currency?
A stablecoin is a cryptocurrency linked to another asset, which theoretically reduces its volatility. This stability makes them very useful for converting between fiat currencies and other cryptocurrencies.
Stablecoins can be linked to asset classes, such as physical currencies, a basket of currencies, other cryptocurrencies and even real estate.
Tether was issued in 2014 and is the largest stablecoin in circulation, with approximately 56 billion U.S. dollars in tokens. The Facebook-backed stablecoin Diem (formerly known as Libra) may be launched this year.
Willamette University law professor Rohan Grey assisted in drafting BillHe added: “New entrants who use technological advantages to enter the financial sector have a long history… Provide a change in bank funding and avoid being regulated as a bank in the short term so that they can build market share.”
“all [the variations of stablecoins] For me, it is just a shadow bank, which should be regulated. . . As part of the banking system,” he said.
Harry Eddis, a partner at the law firm Linklaters, pointed to the European Commission’s proposal on the crypto asset market and the UK Treasury’s negotiations on stablecoins, both of which require stricter regulation of the industry , And pointed out the ambiguity surrounding the status of stablecoins.
“If stablecoins fall into the category of unregulated or electronic money, many regulations and behavioral rules will disappear,” Eddis said. “That’s why you see many regulators wanting to advocate regulation.”
Last June, the Financial Action Taskforce, which sets global standards for money laundering and terrorist financing, released Draft report Join the stable currency of the Group of 20 (G20). It pointed out that the mechanism of stabilizing assets can provide a way for market manipulation.
According to CoinMarketCap.com, at the time of the regulatory debate, many investors in the cryptocurrency market are reviewing Tether, the largest stablecoin with approximately $56 billion in circulation.
Stablecoins (“pegged” to the price of $1) have become the focus of attention, partly because it continues to operate in many jurisdictions and has grown rapidly even after being condemned by the New York Attorney General.
The state’s attorney general stated in February that Tether’s “claiming that its virtual currency is fully backed by the U.S. dollar at all times is deceptive”. Tether and its subsidiary Bitfinex were fined $18.5 million for their allegations of reserves and allegations of “having suffered huge financial losses” In the event of 2018.
These organizations have also been ordered to provide quarterly reports that provide detailed information about which assets used to support Tether coins and are prohibited from operating in New York.
New York’s Attorney General Letitia James said at the time: “These companies conceal the real risks faced by investors and are composed of unlicensed and unregulated individuals and individuals who trade in the darkest corners of the financial system. Entity management.” These groups stated that they “will not tolerate any wrongdoing” in this matter.
Now, Tether says that its tokens are “fully” backed by the company’s reserves, but in addition to providing “traditional currencies” to “from tether loans to accounts receivable from the third receivable”, it has There is very little detailed information on the portfolio of assets provided. Party”.
“They still don’t [released] This [information] It’s too late, but the issuance of $50 billion in coins is ridiculous,” said Tim Swanson, founder of technology consulting firm Post Oak Labs.
Tether and several other large stablecoin issuers (for example, USD Coin supporter Circle) have issued so-called “certificates” from third-party accountants to disclose their holdings to a certain degree. However, these statements may be different from traditional audits in terms of disclosure, and there are significant differences between companies.
The spokesperson said: “As the most trusted U.S. dollar digital currency in circulation, Circle has always been committed to maintaining high standards of transparency and accountability for U.S. dollar coins.”
Amy Kim, chief policy officer of the industry organization of the Digital Chamber of Commerce, said that if the company takes a “more unified approach,” it will “build consumer confidence and help the industry grow more responsibly.” Last week, the team issued a report that proposed a cohesive standard to deal with the problem of “inconsistent and inconsistent methods.”
Stablecoins also face long-term challenges from the central bank’s digital currency. It will provide commercial banks and payment companies with an independent digital payment system.
Different proposals include allowing individuals to maintain digital accounts on central banks or digital tokens.
Jonathan Knegtel, co-founder and CEO of Blockdata, a blockchain analytics company, said: “This will be a major geopolitical discussion in the next decade.” Satisfied with the coexisting stablecoin?”
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