Here is our pick of the 3 most important Stablecoin news stories during the week.
The what and how of Regulations!
This week as markets continued to crash the discussion increased about what and how the stablecoin and broader Crypto market should be regulated.
Everyone seems to be waiting on the U.S. which could have a new federal law on stablecoins by the end of this year, lawmakers told attendees at Consensus 2022.
Lawmakers worry that a lack of regulatory clarity may be putting the brakes on crypto innovation, and the recent collapse of terraUSD (UST) only adds fuel to the fire for those calling for action. “I’m going to go out on a limb and say we get stablecoins done this year,” Sen. Pat Toomey (R-Pa.), who put forward his own bill on the topic this year, told attendees.
The precipitous fall of Terra and Celsuis has re-energized crypto sceptics. On May 10, amid Terra’s collapse, Treasury Secretary Janet Yellen argued before the Senate Banking Committee that stablecoins create “run risks, which could threaten financial stability, risks associated with the payment system and its integrity.” Clearly, not every token that calls itself a “stablecoin” is stable, but Ms. Yellen is wrong to think that stablecoins pose a systemic risk to financial stability.
A true stablecoin is a dollar-like token collateralized by at least $1 worth of assets. The best known stablecoins, Tether’s USDT and Circle’s USDC, account for $72.5 billion and $54 billion, respectively, in circulating supply. Opportunistic regulators and politicians, notably the Securities and Exchange Commission’s Gary Gensler and Sen. Elizabeth Warren, call stablecoins “wildcat banks” and argue that they are susceptible to runs.
This view is just uninformed as the historian Niall Ferguson has written here. This has been yet another example of investors losing money (which is also happening on the Dow and Nasdaq), not one where consumers were thinking they were making a safe deposit.
While the market has not yet fully recovered from the onslaught caused by the TerraUSD (UST) depeg, another stablecoin project shows signs of distress, causing fears and speculation within the community.
Stablecoin protocol USDD’s price dipped to $0.97 on major crypto trading platforms on Monday. Because of this, the market started to keep an eye on the project with fears that the project will follow the footsteps of Terra (LUNA), now officially Luna Classic (LUNC). CurveSwaps, a bot that monitors large asset transfers, flagged that $1 million USDD was recently swapped to 997,339 Tether (USDT).
So in summary, the market carnage may still have a way to go and regulations are required to raise some barrier of entry to those who cannot even spell risk management, but it is important that any regulations are sensible and well thought through. We do not want to throw innovation out with the protect everyone from everything bathwater.
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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