Author: MYKEY researcher Jiang Haibo

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1. Overview of Stablecoin Data

We first review the changes in the basic information of each stablecoin in the past week (September 19, 2020 to September 25, 2020, the same below).

Source: MYKEY, CoinMarketCap, Coin Metrics

Source: MYKEY, CoinMarketCap, Coin Metrics

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

In the past week, Tether issued an additional 150 million USDT on the Ethereum chain, the circulation of USDC increased by 334 million, and the circulation of DAI increased by 213 million. The circulation of BUSD, TUSD, and GUSD increased by 64.98 million, 490,000, and 570,000, respectively. The circulation of PAX and HUSD decreased by 1.09 million and 4.51 million respectively.

Source: MYKEY, DeBank

Source: MYKEY, DeBank

Source: MYKEY, DeBank

Source: MYKEY, DeBank

Source: MYKEY, Coin Metrics

Active addresses

Source: MYKEY, Coin Metrics

Last week, the number of daily active addresses of major stablecoins increased by an average of 8.98% from the previous week.

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

Compared to the previous week, the number of daily transactions in major stablecoins rose by an average of 3.1%.

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

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2. U.S. stablecoin regulatory policy

Back in June, the U.S. Office of the Comptroller of the Currency (OCC) issued an “Advance Notice of Proposed Rulemaking,” giving the public until Aug. 3 to weigh in on how cryptocurrencies and other fintech tools would be used in the financial sector. Several banks have indicated that they may be interested in offering crypto custody and other services to clients. In response, Dominic Venturo, chief digital officer at the National Association of American Banks, said the OCC should distinguish between utility tokens, stablecoins, and exchange tokens.

Last week, the OCC issued regulations on stablecoins, affirming that the Commonwealth Bank can provide custody services for fiat-collateralized stablecoins. This is the first time the OCC has issued regulations on stablecoins. The OCC is the federal agency responsible for overseeing the implementation of laws related to national banks and supervising federal banks and foreign bank agencies. Subsequently, the U.S. Securities and Exchange Commission’s Center for Innovation and Fintech Strategy (SEC FinHub) said it could consider adopting a “no-action” stance on specific digital asset activity in appropriate circumstances.

OCC Issues First Regulations on Stablecoins

On Sept. 21, the OCC stated in a press release and subsequent letter of explanation that banks have the right to hold reserves in certain “stablecoins.” Stablecoins mentioned here specifically refer to stablecoins backed by a single fiat currency, excluding other stablecoins backed by commodities, cryptocurrencies or other assets. Stablecoins are in increasing demand and have various applications, such as large-scale transfers, which have great potential. Both technologies that enable cryptocurrencies — cryptography and distributed ledger technology — are advancing rapidly.

Bank Negara has a clear mandate to receive deposits, which is the core business of the bank. Certain stablecoin issuers may also wish to deposit the cash reserves backing their stablecoin issuance with national banks. As long as stablecoin issuers can effectively manage risk and comply with relevant laws (including the Bank Secrecy Act and laws related to anti-money laundering), banks can provide services for their legitimate business, including cryptocurrency business. Accordingly, banks may receive deposits from stablecoin issuers, including stablecoin reserve deposits associated with custodial wallets.

Like other deposits, stablecoin reserves are subject to the same laws and regulations related to deposit insurance coverage. A stablecoin reserve account can be a deposit from a stablecoin issuer or a single stablecoin holder. Banks and Federal Savings Associations (FSAs) are expected to provide accurate and appropriate disclosures regarding deposit insurance coverage to ensure compliance with the Bank Secrecy Act (BSA) and other regulations, including but not limited to customer due diligence as required by the BSA, Patriot Customer identification requirements under the Act, requirements of the Federal Securities Act, and identification of beneficial owners of accounts opened.

Reserves associated with stablecoins can pose significant liquidity risks. New banking activities should be developed and implemented in accordance with sound risk management principles, and banks should establish appropriate risk management processes for the development of new business. The OCC expects all banks to manage liquidity risk at the same level as they take on risk. An agreement between a bank and a stablecoin issuer may include restrictions or requirements on holding assets in a reserve account, and the agreement may specify the responsibilities of the parties. For example, the bank should enter into an appropriate agreement with the issuer to ensure that the balance of deposits held by the bank for the issuer is equal to or greater than the outstanding number of stablecoins issued by the issuer, and the agreement should include a mechanism by which the bank can periodically check the outstanding stablecoins .

To summarize, the National Bank has the right to deposit stablecoin reserves, subject to the following restrictions:

Stablecoins that only support a single fiat currency 1:1 collateral

The bank verifies at least once a day that the reserve account balance is greater than or equal to the issuer's outstanding stablecoin amount

Banks should establish appropriate risk management processes for new business development

Banks must comply with all applicable laws and regulations

Banks must establish appropriate controls and conduct adequate due diligence

The bank must identify the beneficial owner of the account opened

Statement from the SEC

The SEC Innovation and Fintech Strategy Center (SEC FinHub) issued a statement after the OCC issued the letter of explanation.

Whether a particular digital asset, including stablecoins, should be considered a security under federal securities laws is a matter of fact. The nature of the asset needs to be carefully analyzed, including the right to hold it and how it can be offered and sold.

SEC FinHub believes that as long as the relevant registration, reporting and other requirements of the federal securities laws are met, market participants may construct and sell digital assets in a way that does not constitute securities. However, the terms used to describe digital assets or financial activities involving digital assets may not be consistent with the SEC's definitions in relevant laws and regulations. FinHub encourages parties involved in the construction and sale of digital assets to contact FinHub through the official website to help them ensure that such digital assets comply with the provisions of the Federal Securities Act. FinHub staff will be on hand to assist participants. If eligible, a "no action" position will be considered.

On September 25, the SEC issued a no-action letter against digital asset securities trading custody brokers, stating that if digital asset securities trading brokers can reduce risks and protect investors, they will not recommend enforcement actions against them. OCC Acting Commissioner Brian Brooks said this went a long way in protecting investors in the nascent asset class.

It can be seen that the U.S. regulatory authorities are willing to encourage financial institutions to provide services for market participants of stablecoins or other cryptocurrencies, provided that they comply with relevant laws and regulations and can effectively protect the interests of investors. As an important part of digital currency, stable currency has been widely used in reality. In the case of legal protection of market participants, stablecoins may usher in faster development.