- The future of stablecoins hangs in the balance as the spectre of regulatory crackdown looms ominously.
- Chairperson of the SEC, Gary Gensler, has suggested that stablecoins may be treated as securities.
- Meanwhile, Tether has unveiled plans to release its audit in the coming months, while USDC gets the go-ahead from auditors.
- The growth of stablecoins in the last few years has been astronomical as they reach a combined market capitalization of $115 billion.
Stablecoins have proven to be indispensable in the current cryptocurrency climate and their utility has seen their market cap surpass $100 billion, with daily trading volumes running into billions. Despite their utility, stablecoins are facing an uncertain future following increasing regulatory crackdown from the SEC while stablecoins themselves are not being backed.
Chairperson of the SEC, Gary Gensler, has disclosed plans to tighten the noose on stablecoins, while Tether has sent shockwaves through the ecosystem with the revelation that it intends to release its long-awaited audit. This news comes after its rival, USDC, rounded up a successful audit which placed it in the green.
Gloomy Times Ahead?
Pessimists may look at the current climate for stablecoins and form a strong opinion painting a gloomy picture. This stance is a result of the frantic pace with which Central Bank Digital Currencies are being developed around the world.
With the digital yuan in its final stages, and others right behind it, stablecoins are facing an uncertain future. There is also increasing pressure from regulatory agencies and critics, who take swipes at stablecoins whenever the opportunity presents itself.
Recently, the head of the SEC, Gary Gensler, told the American Bar Association that stablecoins whose prices are based on traditional assets may be treated as securities.
The SEC boss declared, without mentioning names, that it is irrelevant whether “it’s a stock token, a stable value token backed by securities, or any other virtual product that provides a synthetic exposure to underlying securities.”
US Treasury Secretary, Janet Yellen, has similarly taken a swipe at stablecoins, referring to them as a security risk to the financial system, and called for their regulation, while Jim Cramer described the world’s leading stablecoin, Tether, as being the “Achilles heel” of cryptocurrencies.
Stablecoins Future Is in Their Own Hands
Current adoption rates, and the sheer volume of stablecoins, could be interpreted as an indicator of a bright future, despite a regulatory crackdown. However, the future of stablecoins lies with them being backed, as they claim to be.
USDC’s community was elated after Grant Thorton, an accounting firm, signed its reserve account report. The report revealed that the company’s assets genuinely reflect the, approximately, 22 billion USDC that is currently in circulation.
In a similar move, Tether announced that it will reveal its audit in a matter of months, much to the excitement of the community.
Tether was embroiled in some legal drama with the New York Attorney General’s Office which revealed that the stablecoin was not fully backed. If Tether’s audit, and those of other stablecoins, show that they are fully backed, then the future may not be gloomy after all.
On The Flipside
- Fitch, a rating agency, has stated that the growth of stablecoin issuance could have implications for the “functioning of short-term credit markets.”
- The agency also noted that large reserves behind digital assets may be providing incentive for regulatory agencies to increase their regulation.
Are Tether and USDC Regulated?
According to Dan Burstein, General Counsel and Chief Compliance Officer at Paxos, neither Tether nor USDC are regulated. Tether has claimed that it is “regulated,” while USDC claims to be the “most trusted and well-regulated dollar digital currency.”
According to Burstein, these claims are faulty because these stablecoins do not have a regulator. However, he goes on to state that there are only three regulated dollar-backed stablecoins in the world which are, Paxos Standard (PAX), Binance Dollar (BUSD), and Gemini Dollar (GUSD).
Burstein states that they are regulated because they are overseen by the New York State Department of Financial Services, which ensures that all the right boxes are ticked.
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