A stablecoin issuer could be likened to a bank
He was long awaited by the entire crypto ecosystem across the Atlantic who wanted to know what sauce he was going to be eaten. Days after the SEC was named the US stablecoin “regulator”, an official document goes even further.
This official document is nothing more than a report of President Biden’s task force. The report relates only to stablecoins, which have been clearly in the eye of the storm for several months.
The conclusions of the document are final. Indeed, the task force calls on the US Congress to pass one or more laws in order to regulate stablecoin issuers much more strictly.
👉 To read – United States: a bill strongly threatens the development of stablecoins
The stablecoin issuer seen as a bank: consequences
In the first place, a stablecoin issuer would be seen as a protected depository institution. It is a legal-banking term which is translated quite simply by “bank”.
This designation would be a major change for some stablecoin issuers. We think in particular of Tether (USDT). However, Tether has long since managed to move off the radar, which has earned him recent setbacks with the American authorities.
One of the concrete and most problematic consequences would be the collateral used to back up stablecoins. By being assimilated to a bank, it would be possible for the issuer to use a very small number of assets or reserves.
The other consequences are more regulatory. It is, for example, compliance with all the rules applicable to the banking sector (fight against money laundering, protection of deposits, etc.).
We are also thinking of taking out compulsory insurance, carrying out annual audits and submitting to regulatory authorities such as the SEC and especially the Federal Deposit Insurance Corporation (FDIC).
The FDIC is in a way the equivalent of the French deposit guarantee fund. In theory, it allows each person to be compensated up to $ 250,000 (in France, € 100,000) in the event of bankruptcy of his bank. To do this, each banking or similar institution must fund this guarantee fund.
The issue of reserves and guarantees for issuers of stablecoins
However, Tether has encountered several troubles on this point. Last summer, the USDT issuing company notably indicated that it was going to have an audit carried out in order to justify the way in which its stablecoin is guaranteed. To date, no information has filtered out on this subject.
Circle, its main competitor, issuer of the USD Coin (USDC), called on the large audit firm Grant Thornton LLP. The latter was able to demonstrate how USDCs are guaranteed. More than 60% is guaranteed by fiat currency or equivalent.
So, unlike Tether, Circle is much more transparent than its competitor. This is the reason why he has not (yet) had to deal with justice.
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What will happen in the next few months?
This report was released at the request of the White House and President Biden. The latter wants to legislate on crypto-assets and stablecoins have become the main target.
It is mainly Tether who would have something to be worried about. According to some local observers, the regulator would have little taste for the opacity of the USDT issuer and would like to end the latter’s ultra-dominance.
Implicit consequence, that would benefit the competitors like the USDC or even Paxos. The latter have never hidden wanting to comply with American law.
Anyway, the business model of stablecoin issuers should be completely reviewed. Indeed, by being subject to the same obligations as banks, a company would then have many more costs than today.
Note that this report is only a recommendation and Congress is not obliged to follow it to the letter. Moreover, even if Congress wishes to implement said recommendations, it is unlikely that a law will be passed in the coming months.
👉 To read – According to Messari, the USDT will soon become the dominant stablecoin on Ethereum, ahead of the USDT
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About the author: Benjamin Allouch
Formerly a lawyer specializing in personal data and digital law, I quickly became interested in Bitcoin, blockchain technology and their legal implications. Today, I am an independent consultant and writer in the field of cryptocurrencies and blockchain.
All articles by Benjamin Allouch.