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, best characterized by the industry’s total capitalization, which recently hit the $ 3 trillion mark, albeit for a relatively short period of time.

However, the use of stablecoins, a cryptocurrency whose value is pegged to fiat currency, has increased significantly in recent months, largely thanks to its ability to give investors access to digital currencies while removing many of the core problems – such as: Price fluctuations – which currently affect the crypto market.

Since 2020, the sector has grown by an incredible 500%, growing from a total market cap of around $ 20 billion to over $ 125 billion. As you can imagine, this monumental surge has gone unnoticed by regulators around the world, so the Biden government is actively trying to establish bank-like regulation for companies.

And while crypto advocates are known for their anti-regulatory views, stablecoin issuers such as USD Coin (USDC), Circle CEO Jeremy Allaire, recently spoke out on the matter. 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 in the development of the industry. “There is real evidence that these payment stablecoins can grow relatively quickly on an internet scale as they grow,” commented Allaire.

Are regulations the way to go?

When asked by Circle, a company spokesman told Cointelegraph that the company has a long history of giving full support to the US Congress, which is establishing state oversight over the issuance of stablecoin. , added:

“The rapid scaling and strategic importance of this for the competitiveness of the dollar in the crypto and blockchain age is of crucial importance. We also know that people everywhere can only tangibly benefit from the public blockchain through close collaboration between the public and private sectors, as well as with the creation of the World Wide Web. ”

A spokesperson said Circle would continue to embrace any regulation that helps make consumers and businesses safer and supports innovation and growth that improve economic competitiveness and security. “We believe this can lead to a 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 driving force behind the demands for regulation requires recognition of the various stablecoin models across the space and decentralized spectrum in which they exist. He says:

“The regulation of stablecoins in custody accounts makes sense because they are operated in the traditional financial area of ​​US dollar accounts. Decentralized stablecoins go beyond this and exist as pure on-chain assets and should be treated as peer-to-peer platforms rather than as “issuers”.

Is surveillance a matter of course?

Steven Parker, CEO of the crypto 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 correspond are the subject of today.

He stressed that Sir John Cunliffe, Deputy Governor of the Bank of England, recently noted that the continued growth and use of digital currencies could lead to a major financial crisis. Parker added:

“The response from policymakers to Libra, now Diem, a form of stablecoin, has been quick and there has been a major setback in implementation. Anyone who thinks that regulators will only allow one new unregulated currency to take the lead in economic finance is unfamiliar with how financial regulation works. There is a battle over regulatory scrutiny, but once it’s resolved, stablecoins and their creators and managers will be tightly controlled. ”

Not everyone is convinced of the need for more regulation. Steve Gregory, CEO of the US subsidiary Currency.com Exchange, told Cointelegraph that not all stablecoins are created equal and that, unlike banks, they are not guaranteed with the full confidence and creditworthiness of a sovereign nation like the United States.

However, the exponential growth in the introduction of stablecoins seems to suggest that the market will not be disrupted by lax regulations for stablecoins, noted Gregory, adding:

“Ultimately, the way cryptocurrency exchanges work, there will be two types of stablecoin issuers in the future: those that consciously exploit regulated jurisdictions and offer a plan with transparent accounting, clear rules for redemption and investor protection all rolled into one.” Basket and vice versa there are also other issuers who have a strong but still functioning secondary market without clear regulations being equated with financial institutions. ”

Gregory said the first basket will be a likely place for regulated financial institutions to get involved in crypto-specific financial products, and the second basket is for cross-border transactions from countries with strict currency controls, peer-to-peer markets and access to offshore Exchanges. .

Ultimately, how best to manage the stablecoin market, Gregory believes that the free market should take its course, something that will allow regulated stablecoins to find their place in the global economy and develop accordingly. He believes that unregulated stablecoins will continue to grow and develop into a niche of their own: “Overall, it’s a global asset class and regulations differ in each individual country. This makes it difficult to put the use of stablecoins into a regulatory framework bring.”

The way forward

As part of their future plans, the Biden government appears to be introducing a new “special purpose charter” for stablecoin issuers that would efficiently place them in the same category as stablecoin issuers. In that regard, Allaire believes that the details of the banking charter for a cryptocurrency company will need to be finalized over time in order for the rules to make sense for players operating in this emerging space.

It’s also important to note that stablecoins have become a focal point for regulators in recent months. Back in September, the U.S. Treasury Department held several meetings to delve deeper into the risks stablecoins pose to users and the financial system in which they operate.