Stablecoin issuers are poised to be the banks of the future on the path to adoption

Stablecoin issuers are poised to be the banks of the future on the path to adoption

There’s no denying that the crypto market has grown from strength to strength over the course of 2021, which is best illustrated by the industry’s total capitalization, which recently hit the $ 3 trillion mark, albeit for one relative short period.

However, stablecoins, a class of cryptos pegged in value to a fiat currency, have increased dramatically in recent months, largely thanks to their ability to help investors get wet with digital currencies while eliminating many of the core issues – like daily price volatility – which currently affect the crypto market.

Since 2020, the stablecoin sector has grown by an incredible 500%, rising from a total market cap of around $ 20 billion to over $ 125 billion. As you can imagine, this monumental surge has not gone unnoticed by regulators around the world, so the Biden government is actively trying to develop a bank-like regulatory structure for stablecoin issuers.

And while digital currency supporters are known for their anti-regulatory prospects, stablecoin issuers like USD Coin (USDC) Circle CEO Jeremy Allaire recently took a supportive stance on the issue. In a recent interview, he said that proposals to regulate dollar stablecoin issuers in the United States at the federal level represent a step forward for the growth of the industry. “There’s a real finding that these payment stablecoins could grow relatively quickly on an Internet scale as they grew,” commented Allaire.

Are regulations the way to go?

After reaching out to Circle, a company spokesman told Cointelegraph that the company has long supported the establishment of the US Congress to establish federal oversight for the issuance of stablecoins, adding:

“The rapid scaling and strategic importance of it for the competitiveness of the dollar in the age of crypto and blockchains is of vital importance. We also know that, similar to the creation of the Internet, people everywhere can only benefit noticeably from public blockchains through consistent collaboration between the public and private sectors. “

The spokesman said Circle will continue to embrace any regulation that helps make consumers and businesses safer while supporting innovation and development that improve economic competitiveness and national security. “We believe this can lead to a radically more efficient, safer and more resilient financial system,” they said.

Ryan Matovu, CEO and founder of Ardana – a Cardano-based asset-backed stablecoin protocol and decentralized exchange – told Cointelegraph that the demands for regulation are gaining momentum, the various stablecoin models in this area need to be recognized Spectrum of decentralization they exist along. He said:

“The regulation of centralized stablecoins of the custody type makes sense because they operate in the traditional financial area of ​​holding fiat US dollars in accounts. Decentralized stablecoins are outside of this and, as pure on-chain assets, should be treated as such as peer-to-peer platforms and not as ‘issuers’. “

Is supervision a matter of course?

Steven Parker, CEO of the cryptocurrency wallet app Crypterium and former general manager of Visa’s Central and Eastern European network, told Cointelegraph that there is absolutely no future stablecoin environment that does not end in regulations that at least follow the rules of the banks conform subject to today.

He stressed that Bank of England deputy governor Sir John Cunliffe recently commented that the continued growth and use of digital currencies could lead to a major financial collapse. Parker added:

“The response from policymakers to Libra, now Diem, a form of stablecoin, has been rapid and has had a major setback in implementation. Anyone who believes that regulators will simply allow a new, unregulated currency to play a leading role in economic finance is ignorant of how financial regulation works. There is a battle over control of regulation, but once it is resolved, stablecoins and their creators and managers will be harshly regulated. “

Not everyone is convinced of the need for increased regulation. Steve Gregory, CEO of the US subsidiary of the trading platform, told Cointelegraph that not all stablecoins are created equal and, unlike banks, are not subscribed with the full confidence and creditworthiness of a sovereign nation like the United States.

However, the exponential rate of growth in the introduction of stablecoins seems to suggest that the market is not being shaken by the lax regulation surrounding stablecoins, noted Gregory, adding:

“Ultimately, similar to crypto exchanges, there will be two types of stablecoin issuers in the future: those that deliberately use regulated legal systems and offer transparent accounting, clear redemption rules and investor protection in one basket, and vice versa, there will be other issuers that have a robust secondary market but function without clear rules that can be equated with financial institutions. “

Gregory said the first basket will be the likely location for regulated financial institutions operating crypto-specific financial products, and the latter more likely to be cross-border trading from countries with tight currency controls, peer-to-peer marketplaces, and access to offshore exchanges.

Ultimately, Gregory believes that the stablecoin market should best be regulated so that the free market should run its course, which will allow regulated stablecoins to find their place in the global economy and grow accordingly. He believes that unregulated stablecoins will continue to grow and develop into a niche of their own: “Overall, it is a global asset class, and different regulations in each individual country make it difficult to integrate the benefits of stablecoins into a regulatory framework.”

The way ahead

As part of its future plans, the Biden government appears to be developing a new “purpose charter” for stablecoin issuers that will effectively place them in the same category as banks. In that regard, Allaire believes that the details of a banking charter for a crypto company need to be ironed out over time in order for the rules to make sense for players involved in this evolving field.

It is also noteworthy that stablecoins have become a central topic of discussion for regulators in recent months. Back in September, the U.S. Treasury Department reportedly held a series of meetings to examine the risks stablecoins pose to their users, as well as the financial system in which they operate.