Will US Regulators Make Changes to Stablecoins To Become Tech Banks? In November, US President Working Group on Financial Markets. And PWG release a crucial report that raised concerns regarding the possibility of “stablecoin runs” and “payment risks to the system.” It was the U.S Senate follow up in December by holding hearings on the risks of stablecoins.
This raises the question: is regulation of stablecoins going to be coming into the U.S. in 2022? If so, would the legislation take the form of “broad stroke” legislation from the federal government or fragmented Treasury Department regulation? What impact could it impact non-bank stablecoin issuers, and the entire crypto industry? Can it trigger a kind of convergence in which stablecoins issues will become more like high-tech banks?
Some, however, think that’s not the case. “I believe that the possibility of legislation will not be in place until 2023 at the earliest,” Salman Banaei, head of policy at the cryptocurrency intelligence company Chainalysis said to Cointelegraph. This means that “the regulatory cloud that is looming over the stablecoin markets is likely to continue to be a part of our lives for some time.”
However, the hearings and draft legislation that Banaei anticipates to be present in 2022 will “lay the foundation to create an effective 2023.”
FSOC is Regulate?
If there’s any federal legislation, it is possible that the Financial Stability Oversight Council, or FSOC may decide to act on stablecoins by 2022. The council’s 10 members include the heads of SEC, CFTC, OCC, Federal Reserve and FDIC as well as other organizations. In this case the issuers of stablecoins. That are not banks could anticipate being subject to the requirements of liquidity as well as customer protection regulations and asset. At a minimum Landy said to Cointelegraph that they are regulating “like cash market money funds.”
Banaei For his part said that his view of FSOC intervention in the stablecoin market “possible but not likely.” However, he could see Treasury constantly monitoring markets for stablecoins over the next year.
What Will the Regulators do on Stablecoins?
In the future, Grey foresees a series of convergences within the stablecoin industry. Central bank digital currencies. And WEF CBDCs with a lot of them are in the process of releasing they will based on an architecture with two tiers with the second tier being retail. Will US regulators make changes to Stablecoins, suggests Grey. There’s a convergence.
Additionally, stablecoin issuers, such as Circle will grant federal bank licenses. And then look like high-tech banks. the differences between traditional banks and fintech expect to diminish. Landy was also in agreement that a similar regulation of stablecoins. Could “force non-banks to join banks or work in partnership with banks.”
The third possible convergence could one of semantic. As traditional banks and crypto companies move toward each other. Banks of the past may adopt some of the terminology that the cryptocurrency world uses. They could no longer speak about deposits but instead stablecoin staking for instance.
Landy has a different view about this issue. “The term’stablecoin’ has been widely criticized in the regulatory world.” He told Cointelegraph and could toss out when stablecoins enter to the attention of U.S. government regulators to make changes. Why? The name alone suggests that they aren’t. The fiat-pegged digital coins aren’t “stable” according to the perspective of the regulators. The term “stable” could confuse the public.
Algorithmsic DeFi, as well as Other Issues
Other issues need to be resolved also. “There is a major issue with the way that stablecoins are used to support DeFi,” said Massari. However, “banning stablecoins will not be enough end DeFi.” Also it’s the issue of algorithmic stablecoins. Which are stablecoins that don’t have backing by fiat currencies or commodities. But instead rely on sophisticated algorithms to ensure their prices remain stable. What are regulators’ options with these coins?
According to Grey the algorithmic stablecoins are “more dangerous” in comparison to stablecoins backed by fiat however, the government did not discuss this issue with the PWG report, perhaps due to the fact that algorithmsic stablecoins aren’t popularly used.
Isn’t there an overall risk of excessive regulation? Is there a concern that regulators could be too strict in regulating on this evolving and new technology?
"I think there's the risk of excessive regulation," said Banaei, particularly in light of the fact the fact that China is close to the launch of the CBDC, "and the digital Yuan is likely to become a global scalable payment network that can take a an enormous market share from payments networks currently under the sway by U.S. policymakers."