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Crypto Collaborations Under Watch: Federal Reserve’s New Oversight Initiative For Banks

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In a move aimed at ensuring the safety and soundness of the banking system amid the rise of digital currencies, the Federal Reserve has unveiled a comprehensive program to oversee banks’ involvement in cryptocurrency activities, mainly focusing on their partnerships.

Under the newly announced program, state-owned banks regulated by the Federal Reserve will be required to seek approval before engaging in activities related to stablecoins. These activities encompass issuing, holding, or trading stablecoins. 

To obtain approval, banks must demonstrate that they have implemented adequate safeguards and controls to mitigate potential risks associated with the rapidly evolving crypto landscape.

The Federal Reserve Board clarified that the program’s scope extends beyond mere crypto transactions. It encompasses two categories of activities: first, intricate, technology-driven partnerships with non-banking entities aimed at delivering banking services to customers; second, activities involving crypto-assets and distributed ledger technology, commonly referred to as “blockchain.”

The primary objective of this novel activities supervision program is to harness the benefits of financial innovation while proactively addressing and mitigating inherent risks. To achieve this, the program will be seamlessly integrated into the existing supervisory framework of the Federal Reserve. 

Subject-matter experts from the program will collaborate with the current supervisory teams to effectively monitor banks engaged in these novel activities.

Uniform Approach To Crypto Limitations

This development augments the Federal Reserve’s commitment to achieving transparency and consistency in the evolving financial landscape. The new program is an extension of the Board’s policy statement issued on January 27th, which sought to establish a level playing field for all banks under Federal Reserve supervision, irrespective of their deposit insurance status.

In accordance with the­ policy statement, both insured and uninsure­d banks overseen by the­ Board will face the same limitations on activitie­s. This consistent approach aims to prevent the pote­ntial exploitation of regulations and foster fair compe­tition among financial institutions.

Furthermore­, the Federal Re­serve emphasize­s that banks should not only abide by the legal frame­work but also ensure prudence­ and security in their operations. To guarante­e the safe conduct of activities, robust risk manage­ment processes, inte­rnal controls, and suitable information systems are conside­red indispensable.

The Fe­deral Reserve­’s proactive stance is a response­ to the increased inte­rest and involvement of banks in ne­w and unprecedente­d activities related to crypto-asse­ts. The recently outline­d evaluation process emphasize­s their commitment to assessing such activitie­s according to established practices.

However, the Fe­deral Reserve­’s new program de­monstrates a resolute commitme­nt to balance both embracing financial innovation and safeguarding the­ stability of the banking system amidst rapidly evolving te­chnological landscapes.

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Binance’s Stablecoin Strategy: A Leap Forward Amidst Industry Challenges

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Binance, amidst the volatility of cryptocurrencies, recognizes the significance of stablecoins as a beacon of reliability for traders and investors. Recently, Changpeng Zhao, also known as CZ, the founder and CEO of Binance, disclosed the exchange’s strategic approach to stablecoins, with the objective of enhancing trust and bolstering confidence in the constantly evolving crypto space.

As the crypto market continues to grow, so does the need for stable digital assets that can preserve value and reduce risk. Binance, one of the world’s largest and most influential cryptocurrency exchanges, has recognized this demand and is actively enhancing its offerings to cater to user needs.

In a recent interview, CZ emphasized the significance of stablecoins in providing traders with a shelter from market volatility. By ensuring a stable value, these digital assets enable seamless conversions and reduce transaction costs. Among the various stablecoins in the market, Tether (USDT) and Binance USD (BUSD) have emerged as popular choices. CZ’s focus lies on strengthening BUSD’s position as a leading stablecoin.

One of the main objectives of the exchange’s stablecoin strategy is to build greater transparency and confidence in BUSD. CZ acknowledges that regulatory compliance and adherence to stringent financial standards are crucial for stablecoin projects. In light of this, the exchange has been working tirelessly to establish strong partnerships with regulated financial institutions, auditors, and regulators. Such collaborations enhance the credibility of BUSD and promote a secure and trustworthy ecosystem for users.

Binance’s Expanding BUSD Integration

Another critical aspect of the exchange’s strategy is ensuring BUSD’s wide accessibility and usability across various platforms and services. CZ envisions integrating BUSD into a multitude of applications, ranging from decentralized finance (DeFi) platforms to online merchants. This expansion will facilitate instant and low-cost transactions, propelling the adoption of BUSD as a preferred payment method within the crypto space.

Changpeng Zhao

Furthermore, the exchange’s commitment to technological innovation is evident in its efforts to embrace blockchain advancements. CZ believes that leveraging blockchain’s potential can optimize BUSD’s underlying infrastructure, enabling faster and more efficient transactions. As blockchain technology evolves, the exchange is poised to adapt and integrate these developments seamlessly, further enhancing BUSD’s utility and appeal.

Despite the robustness of Binance’s stablecoin strategy, CZ remains humble and acknowledges the ever-changing crypto landscape’s uncertainties. He highlights the importance of continuously learning and adapting to market dynamics, emphasizing that Binance will stay proactive in mitigating challenges and seizing opportunities.

In conclusion, Binance’s stablecoin strategy represents a pivotal step forward in strengthening the crypto market’s stability and resilience. With BUSD at its core, Binance is setting a precedent for how stablecoins can play a vital role in the future of finance. As CZ and his team continue to navigate the complexities of the industry, their dedication to innovation and regulatory compliance ensures a promising outlook for Binance and the broader crypto community alike.

Bitcoin Dominance, Stablecoins Shift, DeFi Gains Traction: Binance H1 2023 Report

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In the latest Binance report in the first half of 2023, the cryptocurrency market has exhibited impressive resilience despite facing various challenges. Bitcoin, the leading digital asset, has achieved remarkable milestones, dominating the market with its highest share since April 2021. Moreover, its year-to-date price performance, soaring by over 87%, has outperformed many traditional financial investments.

One significant change­ in the market can be obse­rved in the stablecoin se­ctor. The overall value of global stable­coins has decreased by 7.0%. Howe­ver, it is intriguing that USDT has witnesse­d a remarkable surge, with its marke­t share skyrocketing by 25.8% this year. This growth has re­shaped the landscape of the­ sector, setting USDT apart from the othe­r major stablecoins.

While Bitcoin has been thriving, NFTs have not enjoyed the same level of success. Although there was increased trading volume in H1 2023 compared to H2 2022, many NFT collections’ floor prices have declined year-to-date, underperforming the broader crypto market.

Notable de­velopments have arise­n in the realm of DeFi, fue­led by liquid staking and the growing migration of users towards DEXes. Despite e­xperiencing a slight 0.5% decline­ compared to the overall crypto marke­t, DeFi remains a powerful sub-se­ctor within the cryptocurrency industry.

The infrastructure sector has emerged as a clear area of interest for investors in H1 2023, attracting the most investments. Gaming and entertainment, along with DeFi, followed closely behind in terms of investment appeal.

Throughout the first half of 2023, the­re has been a de­cline in overall crypto deal activitie­s. Venture capital funding has also expe­rienced a fall. Howeve­r, despite these­ challenges, the industry is witne­ssing increased institutional intere­st and adoption. This growth is happening alongside more re­gulatory scrutiny.

Bitcoin’s 87% YTD Outperforms Traditional Investments

Bitcoin’s performance during this period has been remarkable, outpacing major traditional financial investments and reaching multi-year highs in dominance. Additionally, its correlation with traditional finance has reached multi-year lows, underlining its increasing independence from the broader financial markets.

Whereas the marke­t’s current volatility and funding constraints pose challenge­s for some projects. In response­, teams are being urge­d to prioritize enhancing their e­xisting models and products in preparation for future growth. Proactive­ steps have bee­n taken by institutions to explore and e­ngage with the crypto industry, and a trend furthe­r accelerated during the­ “Bitcoin ETF” season.

Looking forward, the crypto market is expected to witness continued development and innovation in the coming months. With the industry’s ability to weather challenges and attract institutional interest, the overall sentiment remains optimistic.

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Crypto Market Structure: Volatility, Dominance, & Regulatory Challenges Of Stablecoins

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In the ever-evolving landscape of cryptocurrencies, stablecoins have emerged as a significant force in the market. According to the latest report from Kaiko, stablecoins now account for a staggering 74% of all cryptocurrency trades on centralized exchanges (CEXs).

This dominance is fueled by the popularity of Tether (USDT), which holds a massive 70% market share. However, the stablecoin market is not without its challenges and risks.

In recent months, stablecoins have experienced notable volatility, raising concerns about their reliability. TrueUSD (TUSD) faced uncertainty when Prime Trust, its custodian, shuttered its services. USDT experienced a de-pegging incident due to mysterious selling activity. 

Binance USD (BUSD) struggled with increased volatility following Paxos’ decision to halt issuance, and USDC crashed during a banking crisis in March. These fluctuations underscore the dependence on centralized stablecoins and the need for greater transparency regarding their reserves.

Stablecoins Command 74% of Cryptocurrency Trades

Upcoming European re­gulations seek to address gove­rnance issues relate­d to stablecoins, but significant progress still lies ahe­ad. Currently, fiat currencies hold a re­latively minor position in global cryptocurrency markets, comprising only 23% of the­ market share. In contrast, stablecoins dominate­ the remaining 74%.

Upon examining the­ trade volume across centralize­d and decentralized e­xchanges, it becomes cle­ar that Tether stands unrivaled as the­ leader, commanding an impressive­ 70% market share on CEXs. 

Binance USD (BUSD), once a potential competitor, has encountered regulatory challenges, causing its market share to drop from 30% to a mere 6%. The most remarkable rise has been witnessed by TrueUSD (TUSD), climbing from less than 1% to 19% in just three months. Binance’s promotion of a zero-fee BTC-TUSD pair propelled its ascent.

On decentralized exchanges (DEXs), the landscape is different. DAI, the only decentralized top stablecoin, has seen its dominance eroded by USDC and USDT. The shift can be attributed to the relative capital efficiency of each stablecoin, as DAI requires over-collateralization to mint tokens, while the centralized counterparts do not.

Nevertheless, the future trajectory of the stablecoin market structure will largely depend on regulatory actions and the willingness of issuers to enhance transparency. Unless a coordinated global ban or comprehensive legislation is enacted, the market will likely retain its current structure, posing risks and opportunities for participants.

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Embracing Web3: Circle CEO Optimistic About Hong Kong’s Digital Asset Future

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Co-founder and CEO of Circle, Jeremy Allaire, expressed his cautious optimism about Web3 development in Hong Kong and the local monetary authority’s efforts to regulate stablecoins. While acknowledging that mainland China is unlikely to open its cryptocurrency markets, Allaire believes that Hong Kong can remain relevant by embracing digital assets.

Hong Kong’s Regulatory Focus On Stablecoins: Circle Encouraged

In an interview with the South China Morning Post, Allaire emphasized the global trend of major financial markets and institutions embracing digital assets. He stated that for Hong Kong to maintain its relevance, it needs to follow suit. However, he clarified that this doesn’t imply mainland China’s openness to crypto trading.

Despite some officials from mainland China showing support for Hong Kong’s crypto industry, there is no indication that Beijing itself is warming up to cryptocurrencies. 

Allaire acknowledged this but highlighted the potential of stablecoins, which could offer an immediate solution for China’s goal to internationalize the yuan. He suggested that stablecoins might be more effective than central bank digital currency (CBDC) in achieving this objective.

Allaire mentioned an example of a stablecoin pegged to the offshore yuan (CNH) and its potential impact on the global trade of the Chinese currency. However, he noted challenges, as some team members behind the stablecoin CNH Coin were detained in Shanghai without explanation.

Circle, the operator of the USDC stablecoin, sees promise in the HKMA’s plans and considers Hong Kong’s prioritization of stablecoin regulation as a motivating factor for business growth. Allaire commended the government’s focus on this area and expressed Circle’s excitement to expand their operations in Hong Kong.

Moreover, Allaire believes that central bank digital currencies (CBDCs) and private stablecoins can coexist in a well-regulated environment. He sees CBDCs as an upgrade to legacy systems, while private coins drive innovation on the public internet.

According to Allaire, Circle’s significant business presence is in Asia, particularly in Hong Kong, which serves as its largest non-US market with approximately 125 employees.

Overall, Allaire’s views reflect a nuanced understanding of the challenges and opportunities for digital assets in Hong Kong and China. While he acknowledges the limitations in mainland China’s stance on cryptocurrencies, he remains hopeful about the prospects of stablecoin regulation and Web3 development in Hong Kong.

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Hong Kong’s Stablecoin Dream: HKDG Aims To Redeem

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To enhance competition with stablecoins like USDT and USDC, a recent policy proposal advises the Hong Kong government to create its own stablecoin, HKDG, supported by its foreign exchange reserves.

Wang Yang, the Vice Chancellor of the Hong Kong University of Science and Technology and Chief Scientific Advisor of the Hong Kong web3 Association, along with angel investor Cai Wensheng, BlockCity founder Lei Zhibin, and Ph.D. student Wen Yizhou, co-authored the paper. The news was initially reported by Wu Blockchain.

The proposal underscores the significance of these coins as a means to connect traditional finance with the digital economy. It highlights the perceived advantages, as identified by the authors, of a stablecoin pegged to the Hong Kong Dollar. These benefits include improving financial inclusiveness, enhancing transaction efficiency, reducing costs, refining payment systems, and reinforcing the fintech capabilities of the Chinese special administrative region.

According to the experts, the current government plan, which permits private institutions to issue stablecoins, lacks ambition and may lead to a restricted market share. They make a comparison between Singapore’s XSGD stablecoin, issued by Xfers, which has a market capitalization of $6.6 million, and USDT and USDC combined, which exceed $110 billion. The proposal points out that Hong Kong’s foreign exchange reserves, totaling around $430 billion as of March, surpass the combined market capitalization of USDT and USDC. Consequently, the proposal suggests that an HKDG stablecoin supported by the government would offer greater credibility and reduced risk.

Stablecoin Risks Acknowledged, HKDG Shines As Safer Option

The proposal recognized possible risks like legal and regulatory challenges, technical uncertainties, and short-term exchange rate fluctuations. However, it contends that the risks associated with the government-issued HKDG would be lower compared to these coins issued by private entities.

Furthermore, the paper put forth the notion that HKDG would enable Hong Kong to make significant progress in the direction of reducing reliance on the U.S. Dollar and confronting its supremacy within the crypto ecosystem. The experts asserted that HKDG could additionally offer increased liquidity for government investment initiatives, facilitate the digital transformation of traditional assets, foster financial innovation and competitiveness, and enhance transparency.

In a recent development, Hong Kong has indicated its intention to regain its status as a prominent global center for the cryptocurrency industry. To achieve this goal, the region has established a web3 task force with the aim of cultivating a flourishing ecosystem in the area.

Global Stablecoins Could Soon Come Into Existence: Japan’s Banking Giant

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Japan passed its stablecoin bill earlier this month. This specific asset class was designated as “digital money.” Stablecoins must be connected to the yen or another kind of legal money, according to the new rule. In addition, it should ensure holders have the option to redeem them for face value.

Accordingly, only licenced banks, trust firms, and registered money transfer providers are legally permitted to issue stablecoins. The rule does not apply to existing asset-backed stablecoins from foreign issuers like Tether, it should be stressed.

Now, according to reports, Mitsubishi UFJ Financial Group [MUFG], the largest bank in Japan, is in discussions with firms connected to well-known stablecoins around the world. Additionally, it is in talks with businesses about launching these currencies on its own blockchain platform, Progmat.

Stablecoin Talks Are Doing The Rounds

The topic of the discussions has been the creation of stable coins for international use that are pegged to other currencies, notably the dollar. Progmat will be used by MUFG to create security tokens for external parties. It does not, however, have any plans for its own stable coin. Tatsuya Saito, vice president of products at the bank, told Bloomberg that “MUFG is in talks,” without identifying with whom.

Source: Bloomberg

“Issuers and users can feel safe using stablecoins” now the legislation is in effect.

However, he went on to say that talks have been had with entertainment companies, other non-financial companies, and a collection of Japanese financial firms. Saito went on to say that the bank has been receiving queries from foreign financial organizations. He asserted that Japan might eventually develop into a major worldwide stablecoin issuance center.

Others in the Japanese banking industry have also experimented with and tested stable coins. Recent reports state that three Japanese banks joined forces to test out stable coin payments. On the “Japan Open Chain,” GU Technologies, a provider of Web3 infrastructure, created a system for the same. The chain complies with Japanese law and is completely compatible with Ethereum. The banks involved were Tokyo Kiraboshi Financial Group, Minna no Bank, and Shikoku Bank.

FED Views Stablecoins As Money But Is Against State’s Role As Watchdogs

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FED Chairman Jerome Powell underscored the need for a robust federal role in creating a comprehensive regulatory framework for stablecoins.

Testifying in front of the House Financial Services Committee, Powell said the FED views payment stablecoins as money and hence doubles down on regulating the sector.

“We believe that it would be appropriate to have a quite robust federal role in what happens in stablecoins going forward, and leaving us with a weak role and allowing a lot of private money creation at the state level would be a mistake.”

The FED chair was responding to questions from Rep. Maxine Waters (D-Calif.), who raised objections to her Republican counterparts’ suggestion that state regulators be given the authority to regulate stablecoin issue,

Waters claimed that the most recent Republican legislative proposal would leave the Fed “severely hamstrung” and that a high government floor for regulation of nonbank stablecoin issuers is necessary.

In early June, the Republican chair of the House Financial Services Committee flout a new proposal for overseeing stablecoins.

The draft, shorter than its earlier versions called for developing regulations for the issuance of stablecoins while still allowing state regulators to monitor the businesses issuing the tokens.

The bill grants the Fed a few more powers than the Republican’s earlier proposal, including the ability to take emergency action against state-regulated issuers. Additionally, states could delegate their oversight responsibilities to the federal watchdog.

However, Waters said that “This proposal takes state preemption to a whole new level,” pointing out how a stablecoin approved in one jurisdiction might subsequently be offered for sale in other states regardless of whether those regulators gave their approval or not.

FED Chair- No Prospect of CBDC in the US

Along with Waters, Powell expressed skepticism about the state’s approval and preemption of stablecoin issuers, both of which are now included in a Republican-led proposal that is being discussed at the committee level.

Powell also addressed whether the United States should create a central bank digital currency known as CBDC in his testimony on June 21, stating, “We’re a long way from this.”

Meanwhile, the International Monetary Fund, or IMF is working towards creating a unified global CBDC platform to facilitate easier transactions between countries, TronWeekly reported.

IMF Managing Director Kristalina Georgieva emphasized the importance of fostering interoperability in order to prevent further economic fragmentation.

Here’s Why Bitcoin Will Double Its Market Share According To Michael Saylor

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Former MicroStrategy CEO Michael Saylor asserted in a recent interview with Bloomberg that Bitcoin is destined for a protracted period of market dominance, possibly double its present value.

He claims that this rise would mostly be brought on by the United States’ evolving regulatory landscape, which he predicts will eventually lead to a market dominated by Bitcoin.

Stablecoins, crypto derivatives, and tokens will become less popular, according to Saylor, who claims that Bitcoin is the only widely accepted digital good that regulators are prepared to accept. His prediction is based on the idea that as regulators tighten their control over the cryptocurrency market, many crypto-assets will either be outlawed or lose their relevance, leaving Bitcoin to command attention.

Saylor believes that since there will be less rivalry and muddle in the market, this inevitable sector contraction will be extremely beneficial to BTC.

Since the beginning of the year, BTC’s market share has already increased from 40% to 48%, he pointed out.

Saylor believes that the business models of cryptocurrency exchanges will be considerably strengthened by this rise in Bitcoin dominance. He contends that a tenfold increase in the price of Bitcoin will guarantee their profitability notwithstanding any potential restrictions these platforms might encounter in a more stringent regulatory environment. Because of legislative clarity, he anticipates a flood of institutional capital flooding into Bitcoin.

Bitcoin’s Combined Market Cap with Ethereum Surpasses 80%

80.5% of the overall cryptocurrency market value is currently made up of the market caps for Bitcoin, Ethereum, and stablecoins combined. The market capitalization is at somewhere around $1.05 trillion.

The price of altcoins significantly dropped last week. This happened as a result of litigation the U.S. Securities and Exchange Commission (SEC) brought against cryptocurrency exchanges Binance, Binance.US, and Coinbase, classifying a number of tokens as securities. The value of some of the tokens cited in the cases, including Binance’s BNB, Cardano’s ADA, and Solana’s SOL, dropped by up to 30% over the course of the week.

The research report from K33 shows that the legal issue can continue for a very long time. It further stated,

“Funds will likely retort to a hands-off approach due to excess compliance work and overall low trading volumes, disincentivizing market participants to engage. This could limit liquidity further onwards and lead to a prolonged slow market.”

Tether’s Market Cap Surge Is Puzzling-Kaiko

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While the daily volume of Tether’s USDT fell to multi-year lows over the weekend, the market valuation of the stablecoin is currently at an all-time high of $82.9 billion.

According to crypto market research firm Kaiko, since stablecoins’ primary use is for trading, the unprecedented surge in USDT’s market cap is “questionable” given that the token’s use plummeted.

“Typically, changes in trade volume have been loosely correlated with changes in Tether’s market cap, with occasional surges during periods of notable market activity. Today, the correlation is at zero,” Kaiko noted.

Stablecoins whose value is tied to the fiat currencies like the dollar are primarily used as a somewhat secure “parking space” for crypto volatility and as a bridge to trade cryptocurrencies.

USDT, issued by Tether, and USDC managed by the Centre consortium are the two most widely used stablecoins measured by market cap and trading volume.

At present, Tether accounts for over 50% of all trades on centralized exchanges. On DEXs, USDC remains the dominant stablecoin.

Just 20% of non-stablecoin swap volume on DEXs is represented by USDT; while this is an increase from the beginning of the year, it is not necessarily sufficient to account for the more than $15 billion gain in market size during the same period.

One possible explanation behind Tether’s rise in market cap could be the impending demise of BUSD together with USDC’s March de-pegging event.

Based on a previous coverage by TronWeekly, the market value of Circle’s USDC depreciated in late March when the company disclosed that beleaguered Silicon Valley Bank [SVB] owned $3.3 billion of the reserves that were utilized to support it.

Even though investors flocked toward its rival, Kaiko pointed out that the “increase seems inordinate” particularly when compared to other stablecoins over the previous few months. This is mostly because Binance promoted TUSD as a substitute for BUSD.

Tether’s USDT Issued Mostly On TRON Network

Next, the research platform took note of how the majority of USDT tokens are issued on the TRON blockchain, especially on offshore exchanges like Binance and OKX.

Although TRON’s DeFi activity is negligible compared to Ethereum’s, it may indicate that market makers and whales favor this network due to its low transaction fees.

With USDC, the relationship between transaction volume and market cap was found to have a “clean correlation.”

“Overall, USDT’s market cap has little correlation with trade volume, which is questionable considering the primary use case for this stablecoin is trading,” Kaiko added.