Stablecoins are on the radar of regulators

National governments are attempting to control the digital asset market to create leverage. Stablecoins, as part of the crypto sector, are also being targeted. The financial instrument has piqued the interest of regulators, owing to the active rise of its capitalization. Read the article if you want to know more about the future of your favorite stablecoins.

According to the media, the SEC of the United States has struck a deal with regulators and will take over oversight of the stablecoin market in the United States. According to a Bloomberg report citing unnamed insiders familiar with the subject, the US Treasury Department will submit a report this week declaring that the SEC has been granted jurisdiction to oversee the stablecoin market. The report will also define the CFTC’s and Treasury Department’s roles in regulating the stablecoin market. According to the report underlining the SEC’s enhanced ability to regulate stablecoins, including enforcement action against issuers. The reforms proposed by Gensler suggest that the government would take an active role in regulating stablecoins in the future.

What are stablecoins?

Stablecoin is a cryptocurrency that is tied to fiat money at a 1:1 ratio (usually, but not always). Because all cryptocurrencies are very volatile nowadays, the developers reasoned that a stablecoin tied to a steady fiat currency should be stable as well. As a result, stablecoins attempt to blend the greatest aspects of cryptocurrency and fiat money. In reality, stablecoin can be linked to any asset other than fiat currency. As a rule, crypto traders use stablecoins to fix profits and protect balances from drawdowns when the value of the assets rises. The stablecoins market boosts the legitimacy and acceptance of cryptocurrencies in general. Also, some institutional investors use stablecoins, enhancing the industry’s overall turnover and profitability for smaller investors.

Why regulate stablecoins?

The high level of capitalization reflects the market’s importance in the international arena. The market capitalization of stablecoins: $144 billion with a total cryptocurrency market capitalization of $3 trillion. Trading volume — $91 billion compared to $176 billion for the total bitcoin market. As a result, several nations’ regulatory agencies have taken on the challenge of developing a regulatory framework for stablecoins.

As the StableCoin market expands, financial regulators are actively establishing laws to monitor and control this section of the cryptocurrency ecosystem. The Financial Action Task Force on Money Laundering (FATF) released proposals for the regulation of cryptocurrencies, including stablecoins, earlier this month. The US Treasury said in September that it will require issuers of stablecoins to ensure their unrestricted conversion into fiat currency. A month later, The Wall Street Journal stated, citing sources, that stablecoins issuers may be subject to the same rules as banks.

However, on November 1, the Treasury Department of the United States produced a study on the hazards connected with stablecoins. The agency viewed stablecoins as a threat to investors and the market’s integrity and requested stringent regulatory controls. The concerns are “bank panic” and excessive complexity in the reserves that secure the stablecoin.

The Presidential Working Group on Financial Markets prepared the study (PWG). Its members urged Congress to classify stablecoin issuers as depository institutions and subject them to obligatory deposit insurance, putting them on par with banks. Organizations that fail to achieve such stringent conditions will be forbidden from producing stablecoins. According to the PWG, supervision should be performed at both the level of such an institution and the level of the holding company to which it belongs.

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Valentyna Bereza, Team bit4you.