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UK Eyes Stablecoin Regulation Amidst Terra Chaos

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The UK Treasury has declared that it is open to stablecoin regulation for payment purposes but that algorithmic stablecoins would be excluded due to their lack of stability. Only stablecoins backed by fiat currencies will be considered. This comment is in line with the queen’s son Prince Charles’ Tuesday speech, which included fiscal issues.

The Government has been clear that certain stablecoins are not suitable for payment purposes as they share characteristics with unbacked crypto assets. We will continue to monitor the wider crypto asset market and stand ready to take further regulatory action if required.

A spokesperson from the Exchequer

The Queen also addressed the growing cost of living that many Britons are facing as a result of the pandemic, with inflation approaching 10% and energy prices rising.

UK government has been cautious with the decision

Chancellor of the Exchequer Rishi Sunak suggested stablecoins and central-bank digital currencies might enhance payment processing networks in a speech on November 9, 2020.

If the UK government changes current electronic money legislation to meet stablecoins, the Financial Conduct Authority will regulate them.

So far, the watchdog has stayed cautious by allowing just a small number of bitcoin businesses to open shop in the UK, forcing other businesses with insufficient AML checks to operate abroad. Last month, the Treasury’s economic secretary remarked, “The UK is open for business and opens for crypto trade.”

“The UK financial services business must always be at the forefront of technology and innovation,” Sunak says. To represent the UK government’s forward-thinking position on the crypto business earlier this year, Sunak commissioned the Royal Mint to create a non-fungible token (NFT) before summer 2022.

The untimely tragedy of the Terra and LUNA algorithmic stablecoins has cast a pall on what was once thought to be a secure haven for cryptocurrency investors.

Senator Pat Toomey of Pennsylvania has called on the federal government to regulate stablecoins in the wake of Terra’s “bank run,” which depleted the company’s liquidity reserves and sent shockwaves across the crypto market with significant selloffs.

Justin Tron’s DAO amass 600M TRX & 500 BTC echoing Nayib Bukele’s ‘Buy The Dip’

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Justin Tron’s DAO is the latest to join the ‘Buy the dip club’ netting 600 million TRX and 500 BTC worth $45 million and $15 million, respectively, mirroring El Salvador’s recent buy the dip move.

The Tron DAO Reserve took to Twitter to explain that TRX and USD are sailing amidst high market volatility and that its main goal is to “safeguard the overall blockchain industry and crypto market.

Adding it intends to “prevent panic trading caused by financial crises, and mitigate severe and long-term economic downturns.”

Founded in September 2017 by H.E. Justin Sun, the TRX network hosts the largest circulating supply of USD Tether stablecoin across the globe, overtaking USDT on Ethereum since April 2021. The network completed full decentralization in December 2021 and is now a community-governed DAO.

Tron’s stablecoin project launched

Most recently, the algorithmic stable coin USDD was announced on the TRON blockchain, backed by the first-ever crypto reserve for the blockchain industry – TRON DAO Reserve, marking its’s official entry into decentralized stablecoins.

Apart from that, the DAO Reserve plays the role of a lender of last resort to market participants and maintains reserve assets of various blockchains and blockchain-powered financial institutions. It also manages the permissions of USDD as its early custodian.

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On May 5, Tron’s algorithmic stable coin USDD went live and so far, the fiat-pegged token has been listed on a number of decentralized finance [DeFi] protocols.

Two days later, the DAO Reserve announced it has bought 504.6 million TRX to fuel the algorithmic stablecoin.

The project has a number of partners now and USDD is listed on Pancakeswap, Kyberswap, Sunswap, Sun.io, Curve Finance, Uniswap, and Ellipsis.

Tron’s USD stable coin runs in a similar fashion to that of Terra’s UST mechanism, which is backed with Bitcoin and TRX cryptocurrencies. But with Terra’s recent fall from grace and the broken dollar peg spooking the broader market sentiments, it might not look feasible of keeping a stable peg to the dollar.

Previously, The TRON DAO Reserve has announced Alameda Research as the first Member and Whitelisted Institution to mint Decentralized USD [USDD], a fully decentralized stablecoin supported by mathematics and algorithms. 

Here’s why US policymakers are at odds with regards to Stablecoins

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US legislators in the Biden administration and on Capitol Hill have unanimously voiced their support for tighter regulation towards stablecoins as Washington wraps its head around the rapidly growing cryptocurrency industry.

Stablecoins, whose values are tied to those real-world assets like the dollar has grown roughly 500% in the 12 months ending in October, a report from the Biden administration says. As policymakers push for regulating the sector, they seemed quite wary of stablecoin’s meteoric rise.

This is evident from the Tether case which has come under attack from the Commodity Futures Trading Commission last year for alleged misrepresentation of its dollar reserves. The case settled with Tether Ltd. agreeing to pay $41 million without admitting any malpractice.

Despite their conservative outlook, both Democrats and Republicans have agreed on the need for new federal action on stablecoins, but are at loggerheads about how and when to proceed.

On one hand, the Biden administration wants to treat stablecoin issuers like banks, a move criticized by some Republicans and Democrats who favor a lighter statutory touch. Some lawmakers on Capitol Hill, as well as representatives of the cryptocurrency industry, are opposed to the idea of regulating stablecoin issuers like banks.

Rep. Josh Gottheimer, Co-Chair, Problem Solvers Caucus (D- NJ).

Rep. Josh Gottheimer who has overseen legislation that would provide additional oversight of issuers’ reserve assets deviated Biden administration’s request saying, “What we heard is clearly some are willing to become a bank or go that route and others are not and they want a little bit more flexibility,” he said.

US regulatory lingo on stablecoin to persist until next year

The Blockchain Association, an industry group led by Circle, the issuer of one of the most popular stablecoins wants to allow nonbanks to compete with banks in issuing stablecoins. It’s helpful to have that competition, to have that innovation,” said Ron Hammond, the association’s director of government affairs.

In its executive order last month, the Biden administration tasked agencies to improve the government’s handle on digital assets, including the possibility of creating a digital version of the dollar.

As those reviews are likely to take months, lawmakers anticipate that Congress won’t take major action on cryptocurrency until next year.

Senator Pat Toomey Proposed a Stablecoin Regulatory Framework

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Senator Pat Toomey (R-PA) unveiled a draught of his Stablecoin Transparency of Reserves and Uniform Safe Transactions Act, also known as the Stablecoin TRUST Act, on April 6.

As drafted, the law concentrates on a new concept of “payment stablecoin,” which must be redeemable for fiat money. Its assets must also be confined to cash and cash equivalents and level 1 high-quality liquid assets denominated in US dollars.

The fourth category is a little broader than the cash and 3-month T-notes that have become typical among most of the bigger stablecoins, although it would exclude commercial paper, for example.

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Senator Pat Toomey Proposed a Stablecoin Regulatory Framework 4

Toomey issues a proper framework for stablecoins

Payment stablecoin issuers would subsequently be allowed to operate under one of three different licensing regimes for “payment stablecoins” issuers.

Traditional bank charters, a new charter for payment stablecoins, and state-by-state money transmitter licenses — the latter of which is already held by the majority of US crypto exchanges.

Disclosure of backing, redemption rules, and periodical attestations would all be required under the existing legislation. It makes no mention of audits, which is a significant flaw.

It further stipulates that “the word “security” does not include a payment stablecoin,” exempting stablecoins from the regulatory monitoring needed of equities.

Toomey issued requests for feedback on stablecoin legislation last year and announced critical principles for any current legislation.

Since the President’s Working Group produced a report advocating for stablecoin issuance to be confined to insured depository institutions — basically, banks — it’s been at the top of the legislative priority list.

It’s worth noting that Toomey has not yet formally presented the bill. Instead, he’s distributing it for public discussion, which means the final version might be radically different before it’s officially released.

“As Congress continues to work on stablecoin regulation, I look forward to hearing comments on this proposal from my colleagues and stakeholders,” he said in a statement.

Stablecoins have previously been addressed by US politicians in both the House of Representatives and the Senate as a way to integrate them into the financial regulatory system.

In December, Toomey advocated that stablecoin supply not be confined to insured depository institutions at a hearing on stablecoins.

During a House hearing on digital assets in February, North Carolina Representative Patrick McHenry recommended a state-level regulatory framework for stablecoins in place of complete federal law.

Crypto is in the hyper-growth phase; Here’s Why

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The crypto market turned green after enduring heavy losses in September. The global cryptocurrency market cap finally crossed the $2 trillion mark as Bitcoin [BTC] and the altcoin troupe climbed higher. Many in the community believed the market is poised for a rally in the coming months.

Sharing a similar sentiment, Andrew Kang, Co-founder of Mechanism Capital said crypto might be destined for a period of hyper-growth. The exec based his argument on the rising metrics with respect to Defi’s total value locked [TVL], unique Non-Fungible Tokens [NFT], stablecoin market-cap, and others.

Crypto Metrics Exploding

Decentralized finance [DeFi] has been gaining a significant amount of market momentum, defying all the odds. DeFi registered an all-time high near $200 billion in the first week of September right before the market went on a downtrend. Since then, the TVL figures have recovered significantly. According to analytics portal DefiLlama, the total value locked in the overall DeFi market is at $189.6 billion at press time.

TVL on the Ethereum [ETH] blockchain also exhibited similar behavior as it momentarily dipped last month. The figures bounced back and logged at $134.1 billion. Solana [SOL] too witnessed a similar slump briefly before climbing back up to $10.94 billion. Riding along a similar trajectory, Fantom [FTM] soared to an impressive $2.37 billion in total value locked.

TVL
Crypto is in the hyper-growth phase; Here's Why 7

Another catalyst that has driven the crypto market to great heights is the red-hot Non-Fungible Token [NFT] sector. From bringing the digital art world into the spotlight to incorporate luxury fashion brands, the space has attracted both retail as well as institution market participants in its ecosystem. As observed by data analysis website, DappRadar, NFTs saw a whopping $5.2 billion worth of transaction volume being traded in August this year. The blog post also noted that the popular NFT marketplace OpenSea continued to drive more than 90% of trade volume on the Ethereum network.

Soaring Stablecoin market cap

Tether [USDT] has continued to lead the stablecoin market capitalization. The dominant stablecoin is currently hovering at $68.04 billion by market cap. However, of late, its dominance is increasingly challenged by its contenders such as USDC. This is evident from the data analytics report released by skew which shows a growth of 6% in the market cap of the USDC coins during September.

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Furthermore, stablecoin has seen different applications in the crypto industry. Its ability to move value between crypto exchanges as well as acting as collateral in the derivatives market has led to its increased adoption. Other use-cases are medium of exchange, store of value, cross-border payments, etc.

Facebook’s crypto Diem strikes a deal with a risk assessment firm to counter illicit activity

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Facebook’s Diem Networks US has partnered with a risk assessment company called K2 Integrity to develop innovative solutions for the Diem Networks US Financial Intelligence Function [FIF]. According to the official announcement, the main objective of the FIF is to safeguard the Diem Payment Network [DPN] from illicit financial activity.

Diem Networks US has reportedly developed a blockchain-powered payment system for the purpose of making payments cost and time-efficient without compromising the security of its users and the integrity of the financial system. It aims to revamp the payments landscape by incorporating the benefits of blockchain technology to consumers, including those underserved by the current banking system and businesses across the globe.

Stuart Levey, who happens to be the Chief Executive Officer of Facebook’s Diem Networks US, revealed that designing a framework that puts high financial crime compliance standards have been one of the Diem project’s top priorities and went on to add,

“This is an area where we are continuing to innovate. We are excited by this opportunity to partner with K2 Integrity, a team that has a wealth of experience in this space and is respected internationally for their leadership on anti-money laundering and counter-terrorist financing [AML/CFT] issues.”

The official press release highlighted that Diem intends to meet compliance standards, an issue plaguing the entire market.

Facebook Diem Controversies

Formerly known as Facebook Inc’s Libra project, the Digital currency group Diem Association has recently revealed its plans to roll out a US dollar stablecoin. Diem Networks US is one of the units of the widely reported stablecoin project. Since last year, the company has been under the regulatory scanner of regulators around the globe for its potential to disrupt the national sovereignty of currencies.

Due to the fanfare and controversy over the original idea, the Libra cryptocurrency changed to Diem. This was clearly an effort to show that the project has “organizational independence” as it attempted to be more agreeable to governments. However, its ambitious roadmap still seemed to threaten traditional government-run financial systems.

In fact, Facebook Inc.-backed Diem token and Tether [USDT] stablecoin were the main focus of Treasury Secretary Janet Yellen’s closed-door meeting US regulators held on the financial risks posed by stablecoins. Yellen had reportedly urged watchdogs not to delay and “act quickly” in laying down rules to ensure the safety of stablecoins.

Circle publishes USDC stablecoin attestation to increase transparency

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USDC stablecoin has managed to garner significant traction over the past few months. Since the beginning of the year, the dollar-pegged stablecoin had grown more than 2,600%. in terms of circulation. In the latest development, Jeremy Allaire, the CEO of the team behind the digital token, Circle has published a new post wherein he elucidated that the stablecoin is backed by trust, transparency, and accountability.

Allaire claimed in his blog post that Circle and the Centre Consortium has guaranteed the “pillars of trust” to ensure that the community recognises that USDC remains backed on a 1:1 basis with dollar-denominated assets. The exec also underscored that the “pillars of trust” includes ensuring that the USDC ecosystem remained under the governance of the highest level of regulatory and prudential standards.

While stating that the commitment to openness, competition, and responsible financial services innovation remains a foundation for both the Centre Consortium and Circle, Allaire went on to add,

“Providing assurances demonstrated by reserve attestations issued by Grant Thornton, one of the world’s leading accounting firms, that dollar-denominated assets can meet circulation for USDC outstanding. Core economic activities underpinning USDC are built inside the perimeter of the U.S. financial system, and not outside of it.”

Circle’s future plans for USDC

Allaire revealed pondering over different mechanisms to share this in an on-chain, Oracle-linked format while developing and publishing comprehensive analytics on the core liquidity profile of USD Coin, such as the history of creation and redemption behaviour associated with market conditions.

As the stabkecoin issuer moves ahead with its ambitious plans with the upcoming transition to a public company, Circle aims to enhance opportunities for greater transparency, accountability and disclosure around its wider business and functions. Collectively, Allaire asserted that this expanding public accountability can, in fact, aid in enhancing trust in Circle, the USDC stablecoin and ventures building on the standards and market infrastructure that the team has been generating over the past several years.

Tether [USDT] CTO Paolo Ardoino says “everyone takes from king” on competitor’s rising market cap

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Tether, the issuer of the stablecoin USDT, has been constantly under regulator’s scrutiny. Over the past couple of months, USDT appears to be shrinking while its competitor USDC advances at a rapid pace. But this exec is not worried.

Paolo Ardoino, who happens to be the CTO of both Bitfinex and Tether, iterated the famous adage “Let everyone grow so that the sum of all voices will be louder,” and asserted that the “stablecoin industry is much more solid [with competitions] around in the long run.”

Taking a jibe at the recent reports regarding USDC “eating away USDT’s market share,” Ardoino clarified that does not mind seeing growth and that he welcomes everyone provided there is a level playing field. His tweet read,

“Everyone at Tether is proud that the idea that they created in 2014 is now copied by many parties. Ain’t good if no one bothers. So we are flattered. Alone is harder to make history. With a bigger representation of stablecoins, we can aim for fairer regulations.”

USDT’s decline in dominance

The dwindling price of the cryptocurrency market has had no effect on the transaction volume of stablecoins. In fact, the figures have stayed widely unfazed. As per Messari’s latest report, stablecoins witnessed impressive growth in the second quarter of this year amidst market-wide sideways movement. In addition to that, stablecoins have reportedly facilitated a staggering $1.7 trillion in transaction volume, meaning a rise of 1,090% year-over-year and 59% since the previous quarter.

USDT, on the other hand, had failed to impress the charts, as the parabolic growth in the market cap of the world’s oldest and largest stablecoin giant came to an abrupt halt in May.

For almost two months, Tether has not issued a single USDT on the Ethereum network. This has been one of the major factors that have affected the asset losing its market dominance. Additionally, China’s renewed crypto crackdown on USDT is another contributor in addition to the mounting regulatory threats.

Academic paper calls Stablecoins are Wildcats; argues the need for regulation

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Stablecoins have been the talk of the town. Lawmakers around the world have held their reservations about this cohort of digital assets citing its use in cross-border transactions as a threat to the use of state-issued currencies. More recently, two prominent financial experts have now weighed in a paper whose title read, “Taming Wildcat Stablecoins.” Interestingly, these digital tokens are inherently stable that helps investors in times of wild volatility in assets such as Bitcoin, Ethereum, etc.

However, it is not this characteristic that the Yale economist Gary Gorton and the United States Federal Reserve attorney Jeffery Zhang are worried about. A major aspect that stood out on the 49-page document, was the comparison drawn between stablecoin and the Free Banking Era – a world of wildcat banking back in the 19th century if the former is remains unregulated.

“Stablecoin prices are independent of geography but not independent of the perceived risk of their backing assets. If they succeed in differentiating themselves from fiat cryptocurrencies and become used as money, then they will likely trade at time-varying”

The writer also added that protecting the monetary sovereignty of the state is crucial for building monetary policy and stated that the policymakers should learn from history and repeat the same mistakes again. According to the paper, regulating stablecoin issuers as banks and issuing a central bank digital currency [CBDC] is the only way to combat risks associated with these digital tokens.

Community Reactions to Gorton-Zhang’s stablecoin paper

Nobel laureate and member of the American Philosophical Society, Paul Krugman lauded the duo’s academic paper and asserted that they are just a modern version of free banking, wherein the “private banks issued their own notes supposedly backed by specie.” He also went on to call the existing system “crisis-ridden.” Krugman is one of the many digital asset skeptics. Hence, his latest comment has faced some criticism.

The joint scientific effort for the paper did not see a very good response from the cryptocurrency community either. Arturo Portilla, a popular XRP proponent and a fintech lawyer tweeted,

“LOL. Option a): Require stablecoin issuers to become banks. Option b): Require stablecoin issuers to become unprofitable businesses. Option c): Introduce CBDCs and tax stablecoins to death. I’m guessing Jeremy Allaire isn’t having a good time right now.”

Tether Community Unveils non-profit Initiative – Tether Impact

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The stablecoin realm and Tether have been under regulatory scrutiny for a long time. But this has not deterred the community members from launching an initiative in a bid to boost USDT’s use cases across the world. Dubbed ‘Tether Impact,’ the new brand-new organization that will be run by the community and will be a non-Profit, independent organization.

Tether Impact will essentially interact with the world’s largest stablecoin issuer Tether and the crypto ecosystem for the purpose of supporting and incentivizing the use of USDT in third world countries, emerging economies as well across the decentralized finance DApps. This was revealed by a community member, Daniele McDonald. As of now the official website for the initiative consists of just two paragraphs, one of which described its goal as,

“Tether Impact aims to be the bridging point between USDT and its users, raising awareness and educating the general Cryptocurrency Community on any ongoing Tether initiative.”

Growing Tether conundrum

While stablecoin, in general, has been a controversial subject among global lawmakers, USDT, particularly, has been firmly in the regulatory crosshairs. Among those raising an alarm about the potential risks of the world’s third-biggest cryptocurrency, Boston Fed President Eric Rosengren’s comment has stood out. In June, Rosengren not just listed USDT among the “financial stability challenges” the US central bank is eyeing, but also called it “new disruptors” to short-term credit markets. This was also one of the rare moments when an executive in the Feds explicitly cited USDT in a speech.

Currently, there is more than $60 billion worth of USDT in circulation which makes USDT deposits exceed that of many US banks.

Since the beginning, Tether has not been a transparent product, unlike its peers. This changed after the long battle with the New York attorney general [NYAG]. To conform with the settlement terms, the stablecoin has now started publishing the public with quarterly breakdowns of the investments used to back the stablecoins.