Here is our pick of the 3 most important Stablecoin news stories during the week.
CBDC or Private Company issued or Algo stablecoins!
First, let’s start with CBDC’s. Most central banks are exploring central bank digital currencies (CBDCs), and more than a quarter of them are now developing or running concrete pilots. This BIS paper updates earlier surveys that asked central banks about their engagement in this area.
Then, let’s take another look at this rapidly growing and really innovative idea of Algo stablecoins that achieve their stability with no human involvement, just set and forget and let the Algo do the work.
And finally for this week, we saw the Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022, dubbed the Stablecoin TRUST Act for short, makes the U.S. likely the only country, or at least the only Western country, to fully regulate and accept stablecoins as an official part of the financial and banking system.
Introduced by Sen. Toomey, the ranking member of the Senate Banking Committee, the Stablecoin TRUST Act forces stablecoin issuers to adhere to certain rules. The bill clarifies that payment stablecoins are not securities, which is a great thing for the industry. The bill also refers to stablecoins as “payment stablecoins” — digital assets that can be “convertible directly to fiat currency by the issuer” and that have a “stable value relative to a fiat currency or currencies.”
Stablecoin issuers would have to choose between securing the Office of the Comptroller of the Currency (OCC) license, a state money transmitter, or similar license or a traditional bank charter. Stablecoin issuers operating in the U.S. would be subject to a disclosure regime that would require them to secure regular audits, detail clear redemption policies and specify what actually backs the stablecoins they issue.
The Act designates what assets can back their USD-pegged stablecoins, which would be cash, where interest rates are incredibly low, and Treasury Bills (T-Bills), where interest rates aren’t much better. This poses a major problem to both current stablecoin issuers and future players, as they won’t be able to earn higher interest from riskier assets.
So in summary, the BIS is tracking lots of studies at Central Banks on CBDC’s, the US has introduced an Act to regulate private company issued stablecoins (so why do they need a CBDC?) and the crazy guys in DeFi and Algo land are continuing to experiment and build stablecoins that don’t need humans to regulate, issue, redeem or manage the stability of the coin. This could be a wild ride!
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years. Twitter @Alan_SmartMoney
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