Here is our pick of the 3 most important stablecoin stories during the week.
How do you regulate Stablecoins?
This week we saw two major jurisdictions (Singapore and the U.K.) wrestle with this issue, while we got another reminder of what can go wrong when you have an “anything goes” unregulated approach.
First, the Monetary Authority of Singapore (MAS) has proposed a slew of new rules to rein in the local crypto industry – starting with some stringent standards for stablecoin issuers.
The rules include setting capital and reserve requirements for issuers of stablecoins. The measures also seek to ban issuers from engaging in “other activities that introduce additional risks” like lending or staking, which lets users lock their crypto and earn interest.
The proposals come after a turbulent year for crypto markets. The downturn is particularly frustrating for Singapore regulators, as a number of collapsed multi-billion-dollar crypto enterprises like stablecoin issuer Terraform Labs and crypto hedge fund Three Arrows Capital have ties to the country. The MAS had since promised to tighten regulations for the sector.
Also at the same time in the U.K. Rishi Sunak’s government said it wants to ‘tentatively seize’ crypto opportunities including stablecoins as it prepares to widen the regulatory net.
Finally, we got another reminder of what can go wrong when the Near Foundation, an organization supporting the blockchain of the same name, urged the winding down of the USN stablecoin and announced it’s setting aside $40 million to fund a “USN Protection Programme.”
USN is a Near-native stablecoin, which was created and launched by Decentral Bank (DCB) in April, according to a statement from the Near Foundation on Monday.
The foundation said USN is an independently operated community-run project, and that it had no direct financial assistance from the Near Foundation.
According to the statement, DCB recently contacted the Near Foundation to advise it that USN had become undercollateralized, a condition that is “inherent” with algorithmic stablecoins, especially in “extreme market conditions.” DCB further confirmed, according to the foundation, that there was also double-minting of USN, which contributed to the undercollateralization.
So in summary, this week we saw two major regulators look to tighten and increase regulation whilst we see another stablecoin project (algorithmic backed again) get in trouble.
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.