This article comes fromcointelegraph, Original Author: Andrew Singer

Odaily Translator |

Odaily Translator |

Since 2019, the crypto industry segment that regulators around the world have paid the most attention to is stablecoins, and the related risks derived from stablecoins.

Recently, such concerns have intensified, especially in the United States.

In November 2021, the U.S. President's Financial Markets Working Group (PWG) released an important report questioning possible "stablecoin runs" and "payment system risks." In December, the U.S. Senate followed suit, holding hearings on the risks posed by stablecoins.A question was asked at that hearing:

Will U.S. Regulators Regulate Stablecoins in 2022? If the answer is yes, is it regulated through "broad" federal legislation or more granular Treasury regulations? Furthermore, what impact will such regulation have on non-bank stablecoin issuers and the crypto industry as a whole? Will it prompt stablecoin issuers to become more like high-tech banks?

Douglas Landy, Partner at White & Case, said:

"We're almost certain to see federal regulation of stablecoins in 2022."

Rohan Gray, an assistant professor at the Willamette University School of Law, echoed the sentiment:

“It’s true that stablecoin regulation is coming, and that’s going to be a double push, pushing federal legislation across the board, and forcing the Treasury Department and related agencies of the federal government to be more aggressive.”

However, there are others who say that the pace of regulation will not go so fast. Salman Banaei, head of policy at cryptocurrency analysis firm Chainalysis, said:

In other words, Salman Banaei predicts hearings and bills drafted in 2022 are only "preparing for a potentially fruitful 2023."

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Crypto assets are heating up

Most agree that regulatory pressure is increasing — and not just in the US. Rohan Gray said:

"Other countries are responding in the same way." The trigger was Facebook's Libra project (now Diem) proposed in 2019, through which Facebook announced that it would develop its own global currency--a big surprise to policymakers. Alarm bells sounded — they made it clear that they couldn’t stand by, even though the crypto industry was “a small, somewhat novel industry” that posed no “systemic risk.”

According to Salman Banaei, three key factors are driving stablecoin regulation forward today.The first is the issue of reserve guarantees.

, this issue has actually been clarified in the report of the US Financial Stability Oversight Board. According to Salman Banaei, some stablecoin issuers will provide misleading analytical data about the holder's assets in the announcement, which may cause holders of these digital assets to suddenly wake up, due to re-pricing and potential run risks, may It will lead to a serious depreciation of the assets held by the stablecoin issuer.The second problem is that stablecoins are fueling some speculation

, these actions include the development of dangerous unregulated ecosystems, such as DeFi applications that are not yet subject to regulations like other digital assets.The third question is that "stablecoins have the potential to become legitimate competitors to standard payment networks"

, the stablecoin issuer is likely to give a set of "widely scalable payment solutions" one day, and this will deal a big blow to traditional payment systems and banking service providers.

Regarding Salman Banaei's second point of view, American University law professor Hilary Allen told the Senate in December last year that today, stablecoins are not used to pay for goods and services in the real world as some people think. The purpose is to support the DeFi ecosystem, which is actually a fragile shadow banking system that may disrupt our real economy.

Rohan Gray added:

“As the crypto industry grows and grows, stablecoins become increasingly important, yet their compliant development has been hindered.”

In fact, over the past year, stablecoin industry leader Tether (USDT) has been pointed out to be having serious problems with its reserve assets. Later, those seemingly compliant and well-intentioned issuers were also found to be misleading in terms of asset reserves. For example, Circle, the main issuer of USD Coin (USDC), once claimed that its stablecoin was "backed by cash-like assets at a ratio of 1:1." As a result, the New York Times later discovered and pointed out that 40% of Circle's anchor assets are actually The above is made up of U.S. Treasury bills, deposits, commercial paper, corporate bonds, and municipal debt.

“Public hype has reached new heights in the past three months. This has included celebrity hype about crypto assets and non-fungible tokens (NFTs). All of this further forces regulators to keep up with the times.” advance.

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Will the U.S. Financial Stability Oversight Board oversee stablecoins?

Jai Massari, partner at Davis Polk & Wardwell LLP, said:

“2022 may be too early for legislation or regulation of stablecoins at the federal level. On the one hand, this year is a midterm election year in the United States, and I think we will see a lot of proposals. Proposals like this are very important for the formation of early regulation of stablecoins.”

Salman Banaei predicts that the U.S. Department of the Treasury will actively monitor the stablecoin market in 2022. At the same time, he also believes that the U.S. Financial Stability Oversight Board "may intervene but may not necessarily do so" in the stablecoin market.

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Can stablecoin issuers become “depository institutions” with deposit insurance?

For the stablecoin industry, the real "progress" may be to allow the Stablecoin issuer to become a "depository institution" with deposit insurance, which is also suggested in the Stablecoin report of the US President's Financial Market Working Group . U.S. lawmakers have already begun calling for similar measures in proposals such as the 2020 Stable Act that Rohan Gray helped write.

Jai Massari believes that there is no need (and no merit) to impose such restrictions on stablecoin issuers. When she testified before the US Senate Banking, Housing and Urban Affairs Committee, she emphasized that "real stablecoins" are actually "narrow bank A form of financial concept dating back even to the 1930s, Stablecoin “does not undergo maturity and liquidity transformation—that is, short-term deposits are used for long-term loans and investments.” Therefore, stablecoins are inherently safer than traditional banks, and she The supplement explained:

“One of the most important capabilities of traditional banks is that they can take deposit money, not just invest in short-term liquid assets. They can use this money to make 30-year mortgages or credit card loans and invest in corporate debt. There are risks."

This is why traditional commercial banks need to assess the premium of domestic deposits before purchasing insurance from the US Federal Deposit Insurance Corporation (such as deposit insurance). However, if stablecoins limit their reserve assets to cash or true cash equivalents, such as bank deposits and short-term U.S. government bonds, they can be said to avoid "running" risk and require no deposit insurance.

But there is no doubt that U.S. fiscal authorities remain concerned about a potential stablecoin run. The U.S. Financial Stability Oversight Board mentioned again in its 2021 Annual Report released in December last year:

"If the stablecoin issuer does not honor redemption requests, or if users lose confidence in the stablecoin issuer's ability to honor such requests, a run could occur, with consequences for users and the wider financial system. harm."

Douglas Landy commented:

“The deposit run problem rarely arises in traditional finance because the banks are already regulated so there are no issues of liquidity, reserves, capital requirements, all these issues are resolved, but that’s not the case with stablecoins.”

Salman Banaei said:

“I think there are both positives and negatives if the stablecoin issuer has to be an insured depository institution (IDI), for example, an IDI can issue stablecoin wallets that are protected by the FDIC. On the other hand, Fintech innovators will have to work with the IDI so that the IDI and its regulators effectively become the gatekeepers for innovation in stablecoins and related services.”

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What's next?

What's next?

Looking ahead, Rohan Gray believes that the stablecoin ecosystem should undergo a series of integrations. He suggested that the central bank digital currency (some countries have already started to launch) should adopt a two-tier structure, in which the "retail tier" (retail tier) seems to be the same as Stablecoins are very similar. Secondly, he believes that some stablecoin issuers like Circle should obtain a federal banking license. Eventually, these companies will transform into a "high-tech bank". The difference between traditional banks and financial technology companies will be smaller and smaller.

Another situation is that stablecoins and traditional banks are gradually merging with each other. As traditional banks and crypto companies get closer, they may adopt some technologies and solutions from the crypto industry. In the future, managers of established banks may no longer talk about deposits — they will talk about pledged stablecoins.

“However, Douglas Landy does not seem to agree with Rohan Grey's point of view, he explained:Why? So the name suggests something that stablecoins don't. These fiat-pegged digital coins are by no means 'stable' in the eyes of regulators and policymakers, who argue that doing so could mislead consumers. "

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DeFi, algorithmic stable currency and other issues

In fact, there are many other issues in the crypto market that need to be addressed as well.

Jai Massari, partner at Davis Polk & Wardwell LLP, said:

"In the DeFi industry, how to use stablecoins is still a big problem, although banning stablecoins will not hinder the normal development of DeFi. On the other hand, there is also the problem of algorithmic stablecoins-this Stablecoin is not subject to fiat currency or commodities. So what can regulators do about them?

Rohan Gray believes that algorithmic stablecoins are "more risky" than those backed by fiat currencies, but according to the stablecoin report made by the US President's Financial Market Working Group, this problem is not clearly pointed out. There is such a "legacy problem", which may be related to the fact that the current algorithmic stable currency is not widely accepted.

Overall, there are still many gaps in the regulation of the stablecoin industry. In addition, if the policies formulated by regulators are too strict, it may affect and restrict the development of new technologies. Salman Banaei, head of policy research at Chainalysis, concluded: