Regulators Vs Stablecoins

Regulators Vs Stablecoins


Today, the world, which is gaining momentum with a colossal speed of the transition to digital format, is also rolling towards the inflationary abyss with the same speed. For investors, Bitcoin and other cryptocurrencies have become real assets for hedging. But a special place in their portfolios is occupied by stablecoins, which according to in just 14 days, they added another 6.5 billion dollars to their capitalization.

But if Bitcoin is no longer scary to central banks, then stablecoin poses a real threat to their digital currencies – CBDC. And the regulators of the USA and the EU, rolling up their sleeves, launched into all sorts of regulations.

The US Senate tightened the noose around the producers of stablecoins

In the US, so-called stablecoins tied to the dollar price have been increasingly targeted by politicians in recent months. Now the US Senate, or rather Senator Sherrod Brown, chairman of the US Senate Committee on Banking, Housing and Urban Development, has sent letters to the companies behind the leading stablecoins.

In particular, the Banking Committee is interested in finding out how stablecoins are created, sold and traded, and how they can be exchanged for dollars. The main question here is also what could be the reasons preventing the purchase or redemption of such a stable coin as USDC for US dollars or another digital asset. Behind this is the question of what values stable coins are provided with, and whether they correspond exactly to the value of the dollar at any time.

The US Senate has addressed a specific letter to the following companies: Coinbase, Gemini, Paxos, TrustToken, Binance.US, Centre, Circle and Tether. These are the leading companies in this field that are behind the stable coins USDT, USDC, PAX or BUSD.

There are the following stable coin projects:

  • USDT – Tether
  • USDC – Centre, a joint venture of Coinbase and Circle
  • BUSD – Binance in collaboration with Paxos
  • GUSD – Gemini
  • TUSD – TrustToken
  • TUSD – Terraform Labs from South Korea

According to the current situation in the US, it seems that in the future companies will need a banking license to be able to offer stablecoins in the country. Thus, the US is following a slightly different path than other regulators: the EU, and especially China, want to issue their own stablecoins, i.e. digital currencies of the central bank (CBDC), and not leave this issue to the discretion of private companies.

In the EU, for example, as part of MiCA regulation, it is planned to introduce a requirement for licensing of stablecoins with a market capitalization of only 5 million euros.

“We appreciate the interest of legislators in the function, purpose and security of all stablecoins in the cryptocurrency ecosystem. We have been and remain pleased to cooperate with politicians around the world on these important issues,” Tether, the market leader in stable coins, said in an initial statement.

Stablecoins from 5 million euros

If the EU is afraid of something in the digital sphere, then this is the following scenario: cryptocurrency from the hands of a private company becomes so popular that it overtakes the euro in payment transactions. This is the worst dream of all European Commissioners. That is why the EU Commission has proposed strict new rules for companies that bring stablecoins to the market in the draft regulation of crypto assets.

Don’t just forbid it

However, the EU Commission also knows that it will be impossible to stop technical innovations, and therefore does not want to simply ban stablecoins. One of the main reasons for this is the fact that one day the world will see the electronic euro (CBDC is being developed). Instead, companies offering stablecoins will have to obtain a license in the future if they put into circulation an asset with a capitalization of more than 5 million euros within 12 months. This license, of course, will be tied to strict conditions.

By the way, expectation is a good keyword. The EU Commission’s MiCA (Crypto Asset Markets) project is now the basis for discussing a resolution that will be released no earlier than 2022. And since the member states and their finance ministers will have something to say, naturally the document will also be changed no one knows how many times. But there are no concessions in the EU’s plans.

The EU plans to impose strict restrictions on crypto projects and firms

A year ago, a big auction began about new rules for the cryptocurrency market in the EU. MiCA (Markets in Crypto-Assets) as part of the digital finance strategy, it should regulate in the future what crypto companies and projects are allowed to do freely in the European Union, what they need permission for, and what is not allowed at all.

Now the EU Commission has also agreed that a sandbox should be created for distributed ledger technology (DLT), under which the blockchain and, consequently, most cryptocurrency applications fall.

The EU Commission, which together with the EU Parliament and the European Council will finalize the MiCA and new DLT rules as part of the digital finance package, seeks to find a balance between encouraging innovation and the introduction of new financial technologies, as well as an appropriate level of protection for consumers and investors.

However, in order to ensure that innovations in the crypto sector are not completely suppressed, temporary exceptions are provided. This will allow the financial sector to try out a relatively new technology. DLT market participants should be exempt from the rules for volumes up to:

  • Shares: 500 million euros
  • Bonds: 1 billion euros
  • Corporate bonds: 200 million euros
  • Shares of collective investment enterprises (UCITS): 500 million euros.

What exactly is meant is likely to be the subject of numerous reflections by lawyers and company executives in the future. For example, it can be assumed that companies will be allowed to issue security tokens up to 500 million euros relatively freely, or that crowdfunding through crypto assets will also be allowed in the same area.

Another important planned key indicator: “DLT operators can only allow new financial instruments until their total market value reaches 6 billion euros,” according to a document of the EU Parliament.

Six billion sounds a lot, but this figure is quickly achieved. Currently, there are about 35 different cryptocurrency networks – from Bitcoin to Solana, from Axie Infinity to Cosmos, which have a large market capitalization. All of them, according to the newspaper, should now be resolved.

“DLT can bring a number of potential benefits in the provision of financial services. These include reducing complexity, accelerating end-to-end data processing, increasing network fault tolerance, and reducing operational and financial risks. The agreement on the DLT pilot scheme should contribute to the development of successful DLT projects in the EU. At the same time, we managed to create sufficient guarantees to preserve financial stability, market integrity and a level playing field,” said leading MEP Johan Van Overtveldt.

But there is another point on the Earth’s map where the regulator continues to keep the entire crypto industry in suspense. This is India.

India on the Verge of Banning All Cryptocurrencies

Back in March, the Indian government unveiled a plan to ban all cryptocurrencies – with the exception of a digital coin owned by the country (according to Trending Topics). India is now on the verge of implementing this plan.

The government has submitted a draft “Law on Cryptocurrencies and regulation of official digital currencies.” This law plans to prohibit the possession, issue, mining, trading and transfer of almost all private cryptocurrencies.

India fears money laundering and terrorist financing. Indian Prime Minister Narendra Modi in early November has already called on all democratic countries to work together on cryptocurrencies. He said that it is necessary to work together so that digital assets “do not fall into the wrong hands, which can corrupt our youth”.  With this, Modi confirmed the very suspicious position taken by the government of India in relation to Bitcoin and Co. First of all, the government fears money laundering and terrorist financing through cryptocurrencies.

The government wants to introduce a strict mechanism by which law enforcement agencies will be able to track the origin of cryptocurrencies. This should help stop illegal or anti-national activities. However, India is still sticking to its plans to create a national digital currency. The bill provides that the central bank of the country can issue CBDC (Central Bank Digital Currency). However, last year the government failed with a similar attempt in the Supreme Court of India.

An outflow of miners is possible, following the example of China

According to Reuters, the government may first classify cryptocurrencies as an asset class, rather than as a currency. At the second stage, it is expected to limit the marketing of cryptocurrencies in order to make them less visible and, therefore, less attractive to small investors.

In the end, however, the assets will still be completely banned. This may cause an outflow of Bitcoin miners in India, just as it recently happened in China.