After the Bitcoin ETF was launched, US financial regulators once again focused on stablecoins.
Since 2021, the influence of Bitcoin and other Crypto markets is expanding, and has multiple impacts on traditional stock markets and related financial fields. In such a market, stablecoins have become an important infrastructure and are playing an increasingly important role in the global financial market.
Earlier this month, a report released by the International Monetary Fund concluded that the growth of the market value of Crypto assets and the impact of price fluctuations on market sentiment have gradually increased, and financial institutions investment in Crypto has soared. This has also quickly attracted the attention of major international financial institutions.
Recently, regulatory agencies such as the SEC have frequently spoken out around stablecoins.
Overseas regulators are paying close attention to stablecoins and DeFi
In the first half of 2021, the rapid development of blockchain technology and the Crypto market has also rapidly expanded the scale of the distributed financial DeFi market.
Stablecoin growth data can explain all this. Debank data shows that the total market value of stablecoins anchored to the US dollar this year has exceeded 120 billion US dollars, and the current total issuance of stablecoins on the chain has reached 86.93 billion US dollars. Among them, the total circulation of USDT is 33.864 billion US dollars, accounting for 39.01%; the total circulation of USDC is 29.467 billion US dollars, accounting for 33.62%; the total circulation of BUSD is 12.751 billion US dollars, accounting for 14.85%.
At the current rate of growth, this number is expected to exceed $200 billion by the end of 2023, and these rapidly growing figures cannot be underestimated.
This rapid increase in volume began to appear in the first half of this year, and many institutions have realized this. As early as February this year, the Financial Stability Board (FSB), the regulator of the Group of Twenty (G20), put forward relevant recommendations, proposing to set global rules to prevent stablecoins from affecting financial stability; in April, the FSB issued a document explaining Regulatory and supervisory challenges that may arise from global stablecoins and recommendations are given.
This early FSB document mentioned mainstream stablecoins including USDT, USDC, TUSD, PAX, and DAI. Although the document was only of a proposal and advisory nature, it still put pressure on the hot stablecoin market at that time. The main point given by the FSB is that both decentralized and centralized stablecoins will be scrutinized and only licensed stablecoins should be allowed to operate.
In addition, the report still mentions that relevant authorities should use the necessary powers to regulate, control or even prohibit any and all activities related to the operation, issuance, management, provision of custody, and transactions or exchanges related to global stablecoins, This has doubled the pressure on stable currency businesses such as Tether, and the cost of compliance has increased sharply, which directly affects the markets discussion of potential risks in the DeFI field.
Since 2021, the SEC and relevant regulatory authorities have frequently discussed the DeFi and stablecoin market, and relevant information has become increasingly dense.
For a long time, the U.S. regulatory authorities have focused on the characterization of Crypto assets on whether they are regarded as securities or commodities. In this view, digital assets are either regarded as securities and regulated by the U.S. Securities and Exchange Commission (SEC); Either is considered a commodity and falls under the jurisdiction of the CFTC. However, both the industry and the regulators themselves believe that this method is too simplified for digital assets. However, in the face of innovation, it will take time to build more comprehensive regulatory rules.
Based on this, in recent months, the SEC and the CFTC have taken turns to voice their opinions. In April, the U.S. House of Representatives passed a bill requiring financial regulators to set up a working group to turn to digital assets, with representatives from the SEC and CFTC participating. The goal is to add further regulation by giving the SEC jurisdiction over when a digital asset is considered a security and the CFTC having the final say on when a digital asset is classified as a commodity clarity. However, progress in this group has so far been slow.
In early June, the US CFTC mentioned the challenges faced by regulators before decentralized finance in a public speech, arguing that DeFi needs to be regulated. In July, U.S. Treasury Secretary Yellen convened U.S. regulators to discuss stablecoin rules. The conference discussed the rapid growth of stablecoins, focusing on the potential benefits and risks of stablecoins, the current regulatory framework in the United States, and recommendations for addressing regulatory gaps.
In August, the US SEC issued the first DeFi fine, punishing a decentralized financial project called DeFi Moeny Market, requiring the payment of a fine of 125,000 US dollars and the return of 12.8 million US dollars in funds raised. However, the case was subsequently settled with a fine and gently put down.
After that, Coinbase planned to launch a USDC lending business at that time, but soon received a notification from Wells from the SEC that the business originally planned to provide savings accounts with a 4% annualized rate of return. A security was eventually canceled, but this is enough to show that the U.S. regulators are cautious about stablecoin derivatives.
In September, foreign media reported that the U.S. Department of the Treasury and other relevant federal regulators are deciding whether to launch the Financial Stability Oversight Committee (FSOC) to formally review whether Tether and other stablecoins threaten financial stability. Such activities pose a threat to the financial system.
At the beginning of October, the news that Circle, the issuer of the stablecoin USDC, was under investigation by the SEC came again. It can be seen that policies on stablecoins and DeFi may step up.
The Biden administration’s “stablecoin” statement
Just last week, Nellie Liang, a senior cryptocurrency supervisor at the U.S. Department of the Treasury, once again issued a warning on stablecoin transactions. The focus of the Treasury Departments close attention is: whether stablecoins are used for commercial transactions, which may be the threat of Crypto to the U.S. dollar. A signal of status.
At the same time, he also objectively stated that stable coins have become an important part of Crypto transactions, and stable coins are the basis of Crypto and its future related services. But it will also cause a series of problems.
The chairman of the SEC also used casino chips to describe stablecoins.
In a recent interview, the chairman of the SEC said bluntly that the Crypto market has reached the trillion-dollar level and investment tools have grown to several thousand, so regulators must intervene to collect taxes, anti-money laundering, guarantee the rights and interests of investors, and ensure financial stability.
This means that the volume of the Crypto market is large enough that regulators can no longer continue to ignore it.
On the other hand, the advantages of stablecoins in cross-border payments have been shown. The latest report released by the Financial Stability Board (FSB) in October shows that it is exploring the use of global stablecoins to improve cross-border payments. With a given deadline of December 2022, the Committee on Payments and Market Infrastructures (CPMI) needs to consider whether cross-border payments can be improved through a global stablecoin by design. The FSB also set specific goals, such as reducing the global average retail payment cost to less than 1% by the end of 2027 and reducing the cost of all channel payments to less than 3%.
The recent series of remarks made by the Biden administration focusing on the supervision of stable coins are regarded as a foreshadowing of the strengthening of Crypto supervision. Recently, US regulators have put forward some feasible regulatory ideas.
Relevant officials have recently publicly stated that they may use the Dodd-Frank Act enacted after the 2008 financial crisis to initiate the review. The case is considered to be the most comprehensive and severe financial reform bill since the Great Depression. The core content is to protect consumers in the financial system. Under the bill, stablecoins are likely to be strictly regulated.
In this regard, many voices in the industry objected. For example, the stablecoin issuer stated that although Paxos supports the regulation of stablecoins, it does not agree with the use of the above-mentioned bill.
In the multi-party discussions, creating a new type of banking license for stablecoin issuers is another focus of discussion.
If this approach is taken, the SEC will also have the power to require issuers of stablecoins whose reserve assets are backed by securities (such as commercial paper, bonds, or money market funds) to register their stablecoins as securities, and will also require such enterprises to file Investors provide more information disclosure.
For SEC Chairman Gary Gensler, there is a case for this approach. In 2016, the SEC took such measures for the mutual fund industry, requiring better reporting and disclosure of registered investment companies and strengthening the regulation of open-end funds, including mutual funds and exchange-traded funds (ETFs). Liquidity Risk Management. Therefore, it is entirely possible that the SEC will take similar action against the Crypto market.
This month, foreign media sources said. The Biden administration seeks to regulate stablecoin issuers as banks. The Biden administration is also expected to urge Congress to consider legislation to create a dedicated charter for stablecoins.
Some analysts believe that if the Biden administration really puts stablecoin issuers into formal supervision as banks, it will mean an important step in stablecoin regulation. Whether it is from public information or capital flow, stablecoins may develop in a more stable direction,
On the other hand, the Chamber of Digital Commerce, the main crypto industry lobbying organization in Washington, also began to speak out this Monday: asset-backed stablecoins do not pose systemic risks to the U.S. financial system and should not be subject to new rules .
Members of the organization include institutions in the Crypto field such as Goldman Sachs, Citigroup, and USDC issuing company Circle. Its main point is that stablecoins are not large, and there is no need to formulate a separate mandatory regulatory mechanism for this purpose, and treat stablecoins like other digital payment tools, rather than treating them as an investment product. The group also called on issuers of regulated U.S. stablecoins to use the Fed’s payments infrastructure.
The market expects that in the next few months, it is expected that the US regulators will still make major moves in the field of stablecoins and DeFi. With the appeal of institutions and investors in the field of Crypto, there may be progress in both judicial and legislative directions in the United States. Crypto is an innovative field with increasing capital involvement, and many parties in the market are expecting this industry to become a regulatory case where innovation and regulation are balanced.
