With cryptocurrency becoming more mainstream, the technology brings comfort and freedom to those whose lives have been disrupted by inflation. Contrary to this, Capitol Hill residents seem somewhat comfortable despite the growing presence of cryptographic tokens and Decentralised Finance.
There are increasing concerns over the absence of policy and oversight in the $110 billion stablecoin marketplace. This has led to Tether and Circle potentially being subject to bank-like regulations. The Wall Street Journal reports that the proposal was part of a forthcoming stablecoin report by a Treasury-led Presidential advisory group. It is expected to be published late in October.
How could this regulation possibly affect stablecoins
Transparency is one way that the market can change. In a recent speech discussing the potential for the USA to have its own central bank digital currency, pro-crypto Senator Cynthia Lummis expressed concern for the authenticity of stablecoins’ financial backing, saying that they “must be 100 percent backed by cash … and this should be audited regularly.” However, not all stablecoin initiatives are created equal. EURST is a good example of a stablecoin that has been subject to proper audits and has transparent financial reserves.
OCC banking charters were already conditionally granted to Anchorage, a crypto custodian and Paxos, a stablecoin issuer. The national charters will enable crypto companies to be able to work across the US, without having their operations impeded by 50 state bureaucratic obstacles. As a result, these regulations could even expand use-cases for stablecoins – crypto services such as lending and staking will now be connected with the mainstream financial system. According to such a charter, stablecoin issuers or custodians can legally be qualified custodians. It removes any questions about the management of cryptographic key and allows for cautious investors like those who invest in pension funds, which will allow them to access the space.
These ideas have potential but not all may be able to propel stablecoins forward. If tampered with the unregulated nature of crypto and stablecoins could make them less attractive to many. Enthusiasts of the decentralized way of doing things could easily sell their stablecoin holdings and move them elsewhere – perhaps massively tanking the use of stablecoins. What will then happen? What will happen to their asset pegs? Will they be able to keep them valuable, but largely unaffected by doubtful masses. Are there new uses-cases for stablecoins? Will investors find them useful or will they keep the current economy going strong? We will find out in the coming months.