EU Banks Could Access Stablecoins More Easily Under Leaked Plans
The European Commission's plans could moderate a push from Parliament to discourage crypto holdings as it debates new capital requirements for banks.
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The European Commission wants to make it easier for commercial lenders to hold stablecoins and tokenized assets, after lawmakers pushed to discourage crypto holdings as part of a wider banking reform.
A leaked document seen by CoinDesk seeks to moderate the tough position taken by the European Parliament, which in January sought to anticipate global standards by saying banks should be required to issue one euro of capital for each euro of crypto they hold.
Lawmakers from the European Union (EU) have said they want to see the “prohibitive” restrictions to stop crypto turmoil from spilling over into the commercial banking system. Their plan includes giving crypto a 1,250% risk weight, implying a maximum possible capital requirement imposed on lenders who wish to hold digital assets.
The commission's proposal, undated but issued following an April 18 meeting among negotiators, is to bring that down to a 250% risk weight for any stablecoin whose value is tied to non-fiat assets such as gold.
Tokenized assets and stablecoins based on fiat currencies such as the U.S. dollar would be treated the same as the underlying instrument, unless there’s an extra credit or market risk, the document added.
That’s in line with the bloc’s forthcoming Markets in Crypto Assets regulation, MiCA, set to take effect in July 2024, which will regulate stablecoin issuers and require them to hold appropriate reserves.
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Stablecoins are a unique type of digital asset. The value of these assets is pegged to real-world assets: fiat currencies, like the U.S. dollar, or commodities, such as gold or silver. These types of assets also have unique positioning to avoid the impact of market fluctuations. Since a stablecoin’s value is pegged to a real-world asset, crypto market volatility doesn’t affect them. This offers traders a great way for crypto traders to take profits or make swaps without off-ramping.
Essentially stablecoins often operate as fiat on-chain. Much like cash, they are suitable for everyday purchases, such as buying in-game items or paying for crypto services.
But unlike fiat, stablecoins operate on blockchain networks, just like traditional cryptocurrencies such as Bitcoin or Ether. As such, they get all the perks of blockchain tech: sending assets from one person to another doesn’t require a middleman, and transactions are transparent and secure. Peer-to-peer (p2p) transfer slashes the waiting times you’d expect with traditional financial transactions, thus allowing you to execute cross-border trades with ease. Essentially, stablecoins can help funds get to places where banks have struggled.
But beyond that more compelling use case, stablecoins are also popular with crypto traders, speculators, and digital artists alike. Thus today, countless iterations exist. That said, there are only a handful of stablecoins people actually use. One such stablecoin is USDC.
But what is it and how does it help the crypto ecosystem? Let’s take a look.
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Findings
Greater reserve transparency can increase run risk when stablecoin holders believe the quality of reserves backing the stablecoin is low or when transaction costs of conversion to fiat are low. However, transparency can lower run risk when beliefs about the quality of reserves are strong or transaction costs are high. When reserve assets are highly volatile, as in the case of many crypto-backed stablecoins, par convertibility is resilient to small shocks but collapses under large negative shocks, even for high initial reserve values. Drawing on several case studies, we find empirical support for the testable implications of the model.
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Enter flatcoins… They’re a new breed of digital asset that aims to reinvent the stablecoin model, arguing that there’s no point staying level with the US dollar if you’re losing buying parity each year.
Stablecoins and flatcoins represent two different approaches to creating stability in the volatile cryptocurrency market when compared with Bitcoin and Ethereum.
Both offer potential benefits but also have tradeoffs for investors to consider. As digital assets pegged to real-world assets, they aim to provide crypto investors with options that avoid extreme price swings. However, stablecoins and flatcoins achieve stability through different methods, each with unique advantages and disadvantages.
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Essentially, they conclude that stablecoins are like banks - when customers find out they don't have sufficient or quality reserves they are vulnerable to a run/collapse
Tether’s (USDT) dominant position as the largest stablecoin is vulnerable due to its dependence on the American market and pending regulations, JPMorgan (JPM) said in a research report Thursday.
Despite Tether not being based in the U.S., regulators are able to exert some control on the stablecoin issuer’s offshore usage through the Office of Foreign Assets Control (OFAC), the report said.
The stablecoin's association with Tornado Cash is one such example, the bank said, noting that OFAC blacklisted the crypto-mixer that ran on the Ethereum network in August 2022, accusing it of facilitating money laundering.
“While direct legal actions against offshore entities and decentralized firms are complex, indirect measures and international cooperation could potentially hinder the usage of tether,” analysts led by Nikolaos Panigirtzoglou wrote.
Forthcoming stablecoin regulation will probably put “indirect pressure on tether as its attractiveness would diminish relative to stablecoins with more transparency and greater compliance with new regulatory KYC/AML standards,” the authors wrote, adding that this issue would also apply to decentralized finance (DeFi), where USDT is used as a source of collateral and liquidity. KYC refers to customer identification and AML to anti-money laundering regulations.
“Stablecoin regulations, in particular, are set to be coordinated globally via the Financial Stability Board (FSB) across the G20, further constraining the usage of unregulated stablecoins such as tether,” the report added.
Tether has come under pressure to be more transparent about how its reserves are invested, and has been working toward publishing real-time data. Still, JPMorgan says the latest disclosures by the stablecoin issuer are not enough to reduce concerns.
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She asked oversight and regulation concerning AML, terrorism etc.Circle (USDC stablecoin) and Coinbase urging Congress to direct the Treasury Dept. to go after Tether (USDT stablecoin). Ugly.
https://cointelegraph.com/news/teth...after-strong-profits-money-moved-out-of-banksStark - former U.S. Securities and Exchange Commission internet enforcement office head - pointed out that Tether promised to commission a full audit within “months, not years” in 2021, which still has not happened.
An attestation, such as the one published this quarter, is typically more narrowly focused and does not provide an outside opinion on the company’s financial well-being.
https://cointelegraph.com/news/cantor-fitzgerald-head-tether-reserves-they-have-moneyTether and parent company Bitfinex reached an agreement with the New York Attorney General’s office in February 2021 that required it to submit reserve reports quarterly for two years. Tether is reportedly working on a real-time reserves reporting system that may appear in 2024.
Tether has faced criticism for its nontransparent accounting practices, and it received the second-lowest rating in S&P Global’s stablecoin stability assessment.
While it has had attestations, the stablecoin issuer has never been audited and has been the target of rumors and speculation about its financial state. Its last attestation report was released on Oct. 31, 2023.
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TRON was founded by Justin Sun in 2017.[1] The TRON Foundation was established in July 2017 in Singapore. The TRON Foundation raised $70 million in 2017 through an initial coin offering shortly before China outlawed the digital tokens.[2] The testnet, Blockchain Explorer, and Web Wallet were all launched by March 2018. TRON Mainnet launched shortly afterward in May 2018, marking the Odyssey 2.0 release as a technical milestone for TRON.
In June 2018, TRON switched its protocol from an ERC-20 token on top of Ethereum to an independent peer-to-peer network.[citation needed] On 25 July 2018, the TRON Foundation announced it had finished the acquisition of BitTorrent, a peer-to-peer file sharing service.[3] Upon this acquisition, in August 2018, BitTorrent Founder Bram Cohen also disclosed that he was leaving the company to found a separate cryptocurrency, Chia.[4]
By January 2019, TRON had a total market cap of about 1.6 USDT.[5] Despite this market performance, some authors viewed TRON as a typical case of the complex and disordered nature of cryptocurrencies.[6][7] In February 2019, after being acquired by TRON Foundation, BitTorrent started its own token sale based on the TRON network.[8][9]
In late 2021, Justin Sun resigned as CEO of the TRON Foundation, which was subsequently reorganized as a DAO.[citation needed]
In March 2023, Sun and Tron were sued by the U.S. Securities and Exchange Commission for selling unregistered securities related to the sale and promotion of Tronix (TRX) and BitTorrent (BBT) tokens, alleging that Sun and Tron had engaged in wash trading in the secondary market for TRX in order to buoy its price.[10][11][12] Eight celebrities, including Akon, Ne-Yo, Austin Mahone, Soulja Boy, Lindsay Lohan, Jake Paul and Lil Yachty, were charged with promoting these cryptocurrencies without disclosing that they were sponsored, with all those other than Soulja Boy, and Mahone settling with the FTC for more than $400,000, without admitting or denying the charges.[13][14][10]
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In a recent video titled “Legacy is Eating Crypto,” Charles Hoskinson, the co-founder of Ethereum and Cardano, voiced concerns about the growing influence of traditional finance within the cryptocurrency sector. Hoskinson’s message was a call to arms for the crypto community to push back against existential threats posed by the encroachment of legacy financial systems and the dominance of asset-backed stablecoins such as USDT and USDC.
Hoskinson pointed out a stark reality: despite stablecoins representing only about 10% by value of the crypto market cap, “they dominate the on-chain transaction volume – about 70% of all transaction volume. So, from a crypto perspective ETH and Bitcoin take a backseat to USDC and USDT. These are, by volume, the value transfer mechanisms of our industry. They represent the huge majority of on-chain traffic and value transfer in our industry now.”
This dominance, he argues, centralizes control within the crypto space, as these stablecoins are asset-backed and therefore subject to regulations and controls of specific jurisdictions. This centralized influence, according to Hoskinson, could dictate the direction of defi economies, undermining the decentralized essence of crypto.
Hoskinson suggested that algorithmic stablecoins, which are governed by onchain algorithms and free from central authority influence, might offer a solution. These stablecoins, he argues, are more aligned with the decentralized ethos of cryptocurrency.
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... This decision to cease support for USDC on the Tron blockchain comes a few months after Circle dismissed claims that it funds terrorist organizations.
As reported by Bitcoin.com News, Circle through its Chief Strategy Officer Dante Disparte also denied being Justin Sun’s bank in its letter to U.S. Senator Elizabeth Warren. Although Circle did have dealings with Sun before, according to Disparte, these were above board. ...
Circle's USDC, the second-largest stablecoin by market cap, is making a comeback, with liquidity increasing worldwide and usage growing rapidly outside the U.S., leading to a sharp increase in supply in recent months, Coinbase (COIN) said in a research report on Monday.
“The supply of USDC has increased by 14.3% or over $3.5B since December 1, 2023, taking its total market cap to $28B compared to a smaller 8.7% growth for USDT over the same period,” analysts David Duong and Li Liu wrote. USDT is Tether's rival dollar-based stablecoin and is by far the largest, touting a $98 billion market cap.
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... in 2019, the Group of Twenty (G20) mandated the Financial Stability Board (FSB) to examine regulatory issues raised by GSC arrangements and to advise on multilateral responses as appropriate. Subsequently, in October 2020, the FSB published High-level Recommendations for the Regulation, Supervision and Oversight of Global Stablecoin Arrangements. After a review, the FSB published a final version in July 2023 as part of its global regulatory framework for cryptoasset activities.
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U.S. Rep. Patrick McHenry (R-N.C.) said some of the recent chaos in Congress derailed crypto legislation for a while, but a stablecoin bill is largely worked out in the House of Representatives and just needs a scheduled floor vote.
"We have a workable frame," McHenry, the chairman of the House Financial Services Committee, said at Coinbase's Update the System Summit in Washington on Wednesday. "I think we're at the phase where we can see the airport; we can see where we're going to land the plane; we can see how we're going to land the plane; we just don't know when we're going to land the plane."
McHenry has been working with his panel's top Democrat, Rep. Maxine Waters (D-Calif.) on a stablecoin bill for nearly two years, and "month over month, we're in a better position." But with the ongoing debates over federal spending plans that have locked up Congress, he said the lawmakers need to get past the budget issues to be able to get into the legislation he hopes to accomplish before his announced retirement at the end of this session. The House is aiming to vote on its latest effort to fund the federal government this week.
Sen. Cynthia Lummis (R-Wyo.) also spoke at the event, saying those who are working on the stablecoin bill in the Senate are speaking "daily" with their House counterparts. She predicted that a compromise bill is the most likely crypto legislation to make it in 2024.
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Ripple, the enterprise-focused blockchain service and creator of the XRP Ledger, is introducing its own stablecoin pegged to the price of the U.S. dollar.
"The stablecoin market is over $150 billion today and is forecasted to exceed $2.8 trillion by 2028," Ripple said in a statement shared with CoinDesk. "There’s clear demand for stablecoins that deliver trust, stability and utility."
The company said the token, which it plans to release "later this year," will be "100% backed by U.S. dollar deposits, short-term U.S. government Treasuries and other cash equivalents." The stablecoin will be deployed onto Ripple's institution-focused XRP Ledger along with the Ethereum blockchain to start out, and it will be based on Ethereum's ERC-20 token standard.
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According to Schwartz, transparency – historically a key point of scrutiny for stablecoin issuers – will be a key focus for Ripple as it rolls out its new token.
"We're gonna have public audits on a monthly basis, hopefully by a top-tier accounting firm and will disclose more on that later," said Schwartz. "We're aiming for complete transparency. You know, we'll do whatever we need to do to address those issues."
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The Ripple CTO said his token will be aimed primarily at enterprise customers and banking institutions, organizations for whom "those kinds of practical arguments aren't really prescient because they have to justify their decisions" to "stockholders and to regulators and so on."
To satisfy the needs of this market segment, Ripple says it is using U.S. banks to hold its reserves and is taking what it terms a "compliance-first mindset."
USDC is currently the market leader among compliance-oriented stablecoin consumers, but Schwartz said he doesn't see it as "a winner takes all" environment.
The tokenization of fiat currencies, also known as stablecoins, appears to be the “killer application” of blockchain technology that has captured the attention of corporations such as Sony Bank. The banking and financial unit of the Sony Group Corporation has initiated a proof-of-concept (PoC) pilot to issue a fiat-pegged stablecoin on the Polygon blockchain.
According to a Thursday report from local media outlet Nikkei, Belgium-based blockchain company SettleMint has partnered with Sony Bank on the trial, which aims to assess the potential benefits of stablecoins, such as reduced payment and remittance fees, and explore ways to adopt them in Sony’s gaming and sports intellectual properties.
The trial will also explore potential legal issues that arise when transferring Japanese yen-backed stablecoins and other fiat-backed digital currencies within Japan's regulatory framework.
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The stablecoin market is growing and these cryptocurrencies are being adopted for cross-border settlements with payments firms, fintech companies and consumer platforms among the early users, broker Bernstein said in a research report on Tuesday.
Bernstein notes that stablecoin supply currently stands at $150 billion, with tether (USDT) and USD Coin (USDC) dominating the market with shares of 75% and 22% respectively. ...
“Stablecoin value settled on the blockchain indicates strong adoption of digital dollar with the crypto trading ecosystem as well as a cross-border payments currency,” analysts Gautam Chhugani and Mahika Sapra wrote, noting that “Q1 2024 annualized value transferred stands at $6.8 trillion, equivalent to 2022 high of ~$7 trillion.”
The authors said there have been signs of stablecoin adoption by payments firms such as Paypal (PYPL) and Visa (V) and consumer fintech platforms such as Grab (GRAB) in Singapore and Mercado Libre (MELI) in Latin America.
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U.S. Rep. Patrick McHenry (R-N.C.) is sticking to his guns that Congress can produce a stablecoin regulation law before he retires at the end of the year, despite a volatile political climate and the failure of the full U.S. House to vote on a bill his House Financial Services Committee passed previously.
"I think we can get our stablecoin policy set through and signed into law," McHenry said Tuesday at a Bitcoin Policy Institute event in Washington. "That will be the first sign that there is hope and that there is bipartisanship when it comes to this world of digital assets."
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McHenry has been negotiating stablecoin legislation with members of his party and House Democrats for months, and when a bill cleared his committee, it did so with the support of several Democrats. But there has been some resistance from the administration and from the panel's top Democrat, Rep. Maxine Waters (D-Calif.), about the role of the federal government in overseeing stablecoin issuers.
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Stablecoins are gaining traction in the mainstream financial sector, presenting both opportunities and challenges. They hold the promise to mirror the value of fiat currencies but consistently achieving value parity remains a challenge.
As the stablecoin market continues to evolve in its quest to offer a means of payment, national and international regulatory bodies are responding to these developments by implementing a comprehensive suite of measures aimed at mitigating the risks associated with stablecoin issuance. These measures span critical areas, including licensing, reserve asset management, redemption rights, capital adequacy, consumer protection, governance and risk management, cyber security and anti-money laundering (AML)/countering the financing of terrorism (CFT) compliance.
This paper assesses the evolving regulatory landscape for issuers of single fiat-pegged stablecoins. It compares regulatory frameworks issued by 11 authorities in seven jurisdictions to identify emerging trends and commonalities in their respective frameworks.
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12. Authorities also worry about other stablecoin-related risks. These include risks to consumers, market integrity and financial stability, particularly if linkages to traditional finance were to grow further. 13 Also, widespread adoption of stablecoins as payment instruments, for example through the market entry of large tech companies that can leverage their massive customer base, could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources available for financing the real economy and threaten global financial stability (IMF-FSB (2023)).
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Senator Elizabeth Warren (D-Mass.) wrote to the House Financial Services Committee Chair Patrick McHenry (R-N.C.) and Ranking Member Maxine Waters (D-Calif.) urging them to include strong rules that protect consumers, financial stability, and our national security in any upcoming legislation related to stablecoins. ...
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This paper discusses how stablecoins could destabilize what Eurodollars helped to create—the global financial system plumbing that has been a means to implement sanctions3—and what to do about it. ...
Six years after dropping support for bitcoin (BTC) and, thus, crypto payments altogether, Stripe is bringing back the service later this summer, though initially only for Circle’s USDC stablecoin.
“We’re excited to announce that we’re bringing back crypto as a way to accept payments, but this time with a much better experience,” Stripe co-founder and President John Collison said Thursday in a keynote address at the company’s Global Internet Economy conference.
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“Crypto is finding real utility,” Collison said in his keynote Thursday. “With transaction speeds increasing and costs coming down, we’re seeing crypto finally making sense as a means of exchange.”
Payments will be available on the Solana (SOL), Ethereum (ETH) and Polygon (MATIC) blockchains, Stripe said.
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2 May, 2024 – Tether, the largest company in the digital asset industry, has collaborated with Chainalysis, the blockchain data platform to develop a customizable solution for monitoring secondary market activity.
Secondary market activity refers to transactions conducted within the broader ecosystem using USDT (Tether’s stablecoin) beyond the limited entities that directly buy and sell USDT from Tether. This solution crafted by Chainalysis, empowers Tether to methodically monitor transactions, offering enhanced understanding and oversight of the USDT market. It will also serve as a proactive source of intelligence for Tether compliance professionals and investigators, enabling them to identify wallets that may pose risks or may be associated with illicit and/or sanctioned addresses.
Key components of this solution encompass a comprehensive suite of monitoring and analysis tools. These include Sanctions Monitoring, which provides a detailed list of addresses and transactions involving sanctioned entities as well as Categorization which enables a thorough breakdown of USDT holders by type, including exchanges and darknet markets.
It also offers a Largest Wallet Analysis providing an in-depth examination of significant USDT holders and their activities, and an Illicit Transfers Detector which is integral to identifying transactions potentially associated with illicit categories like terrorist financing.
Paolo Ardoino, CEO of Tether stated, “Our collaboration with Chainalysis marks a pivotal step in our ongoing commitment to establishing transparency and security within the cryptocurrency industry. Tether remains steadfast in its dedication to upholding the highest standards of integrity, and this collaboration reinforces our proactive approach to safeguarding our ecosystem against illicit activities.”
“Tether’s proactive commitment to monitoring the secondary market for USDT – the world’s most popular cryptocurrency – has the potential to transform the entire ecosystem and make it a safer place to transact,” said Jonathan Levin, Co-Founder and Chief Strategy Officer, Chainalysis. “Cryptocurrency is transparent, and harnessing that transparency to partner with law enforcement and freeze criminal funds is the best way to deter its use for terrorism, scams, and other illicit activity.”
Tether works to actively combat illicit activities across the industry. The Company has collaborated with 124 law enforcement agencies across 43 global jurisdictions, facilitating efficient communication and data exchange to address illicit activities. Tether’s rigorous enforcement of compliance measures and swift action against misuse of USDT highlight its dedication to responsible cryptocurrency practices, setting a safety benchmark in the industry, and ensuring a safer environment for all participants involved.
A boom in Stablecoins adoption, for sure,and will likely lead to an overall boom in crypto adoption
A boom in Stablecoins adoption, for sure,
but as far as adoption of non-Stablecoins goes...
Hi PMBThe two big hurdles for the growth of crypto right now are the ability to conduct trade anywhere for anything and the availability of off-ramps (for converting crypto back to fiat). The Stripe-stablecoin payment gateway is a solution for both of those problems.
Less than 10% of stablecoin transaction volumes are organic or come from real people, according to new findings by Visa and data platform Allium Labs, Bloomberg reported.
Out of about $2.2 trillion in total transactions in April, just $149 billion originated from “organic payments activity,” the report said. The analysis removed transactions done by bots and large-scale traders to “isolate those made by real people.”
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A stablecoin pegged only to U.S. dollars on deposit in insured bank accounts would not only safely increase the money supply, but it would actually improve the money supply. A U.S.-dollar-pegged stablecoin enhances economic growth by allowing our money to specialize. The pegged stablecoin would be used to transact faster and cheaper. The dollars backing the stablecoin and held in bank accounts would enhance liquidity at banks and those low-cost stable deposits would fund low-cost U.S.-dollar loans.
Only a specific kind of stablecoin would yield these economic benefits. Any coin that promises "yield," "earnings" or "dividends" is presumably a security and any transaction with that coin would trigger capital gains tax. Even if the stablecoin was structured like Tether with no yield promised to holders (i.e., if the portfolio of assets was not strictly limited to dollars in a bank account), the benefits to the U.S. money supply and economy would not result.
The serious, potentially fatal flaw with a stablecoin like Tether is a "run on the bank" problem. Any stablecoin that invests in anything other than U.S. dollars in a bank account cannot guarantee its holders that they can redeem their stablecoin at any time, all at once, and receive 100% of the face value of the stablecoin. ...
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