US President Biden's Working Group Bullish On Stablecoins

Biden’s Working Group on Financial Market maintains a bullish outlook on stablecoins but proposes to impose bank-like regulations.

By
Chung Yee
on
November 4, 2021
Category:
Breaking News

Putting Guesses to Rest

The long-awaited report on stablecoins by the Biden administration paints a bullish picture for the digital assets as a faster, more efficient, and more inclusive payment option but with one caveat, regulation. The report on stablecoins by the Working Group on Financial Market gave a fairly balanced view on stablecoins and identified key prudential concerns. 

The report came as a relief as the industry braces for a crackdown on stablecoins following SEC Chief Gary Gensler’s call for stricter crypto regulation and referencing stablecoins to ‘poker chips.’ 

The overall sentiment in the report is best summed up with a single quotation:  “The rapid growth of stablecoins increases the urgency of this work. Failure to act risks [the] growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy. In contrast, a regulatory framework that supports confidence in payment stablecoins, in normal times and in periods of stress, could increase the likelihood of stablecoins supporting beneficial payments options.”
Source: Stablecoins such as USDT plays a pivotal role in the crypto industry as a reliable store of value

The report from the Biden administration gives a surprisingly positive look at the industry. Obviously, adaptation and evolution are needed on the government’s side, but some key steps could help usher in regulation. Sadly, the government has only been creative enough to approach the industry with regulation. 

Three characteristics that would introduce bank-like regulation are the need for stablecoin issuers to be insured depository institutions; custodial wallet providers must be subjected to federal oversight; finally, stablecoin issuers must comply with activity restrictions that limit the number of affiliations to commercial entities. 


Stablecoin is a Staple in the Cryptoverse

The report is timely as industry players are left guessing the regulators’ concerns on stablecoins. Stablecoins are an essential part of the crypto ecosystem, and any adverse regulation will affect the crypto market. Two stablecoins sit in the top ten in terms of market capitalization on CoinGecko.  

The chair of US Securities and Exchange Commission (SEC), Gary Gensler, has made various enforcement threats on numerous occasions. Unfortunately, this is an unhealthy method to convey the regulator’s concerns as the lack of details sits uneasily with the industry players and the investors. 

Source: Regulators can easily impose the same standards imposed on existing banks and financial institutions if the risk factors are similar.

Stablecoin is a significant fit in the crypto ecosystem. It is a form of settlement that does not fluctuate in value and can be used as collateral. Because stablecoins can perform the function of a reliable store of value, it may chip away the function of a Central Bank Digital Currency (CBDC) if adopted by the Federal Reserve. Therefore, speculation is rife that the real reason for increased regulatory restrictions is to pave the way for the US-issued CBDC. 


Regulating Risk Concerns

The primary issues that regulators identified in the report can be broadly classified as the need to stamp out illicit activities and maintain strict regulatory oversight on the issuer’s depository reserves. Therefore, applying the existing standards that apply to banks and financial institutions would set the stage right for a level playing field. 

However, the delay in addressing concerns that have existed in the financial market even before the first decentralized protocol was introduced raises many questions. Is the government really addressing the issues that they have identified, or are there other policy concerns?

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.