Is the “turning point” of stablecoin coming?

In the context of strict domestic supervision of crypto assets, stablecoins have recently appeared to be the next key “care” object.

“The Fed is focused on doing things right.” On July 15, Fed Chairman Jerome Powell stated in the US House of Representatives that stablecoins should be subject to stricter regulations like money market funds or bank deposits. Supervision.

In fact, since May this year, the Federal Reserve, the U.S. Department of the Treasury, the U.S. Securities and Exchange Commission, and the U.S. Office of the Comptroller of the Currency have frequently released signals on the issue of crypto asset supervision.

At the same time, Japan is strengthening the regulation of crypto assets on a global scale. According to Reuters, Japanese regulators have expressed concern about the large-scale growth of the cryptocurrency market, especially warnings against stablecoins.

With the frequent new signals of stablecoin market supervision, the sensitive nerves of the currency circle have been touched again. CoinDesk columnist, central bank lawyer and researcher Marcelo M. Prates posted that stablecoins face the risk of a recurrence of the financial crisis. Jerome Powell’s previous positive comments on stablecoins ignored the systemic risks that such cryptocurrencies may bring.

Stablecoin market welcomes “turning point”

The crypto asset market has experienced years of development, and investors in the currency circle have long been accustomed to using USD stablecoins as the unit to exchange crypto assets.

At present, the stablecoins on the market are often anchored to the US dollar. The latest research report of blockchain forensics company Chainalysis shows that stablecoins such as USDT are the most frequently traded type of crypto assets. The two main use cases are transaction settlement on exchanges and when traders are waiting for new trading opportunities. Deposit funds in the exchange.

On July 17, The Block data showed that the total supply of stablecoins had exceeded the $110 billion mark. Among them, USDT ranked first with a market share of 58.73%, USDC accounted for 23.34%, BUSD accounted for 10.29%, and DAI accounted for 5.01%.

1626661706893851The total supply of stablecoins exceeds 110 billion U.S. dollars

Since the beginning of this year, especially in the first few months of this year, the market’s demand for stablecoins has greatly increased amid the skyrocketing crypto assets. Taking the various stablecoins on Ethereum as an example, as of July 18, DeBank data shows that the total issuance of stablecoins on Ethereum has exceeded US$74.3 billion. At present, the top three Ethereum stablecoins are: USDT, which accounts for 38.44% of circulation; USDC, which accounts for 34.08% of circulation; and BUSD, which accounts for 15.07% of circulation.

On July 17, Cryptocompare data also showed that the current Bitcoin transactions are ranked according to the transaction currency, with USDT ranked first, accounting for 63.69%.

On July 14, Ryan Watkins of Messari Research Institute tweeted that in the second quarter of 2021, stablecoin trading volume reached US$1.7 trillion, a year-on-year increase of 1090% and an increase of 59% since the first quarter. In addition, in the second quarter, the stablecoin monetary base reached more than 107 billion U.S. dollars, an increase of 70% since the first quarter and a year-on-year increase of 803%. The biggest winners of the quarter were USDC, BUSD and DAI, and their shares increased to 23%, 9% and 5% respectively.

However, since the Financial Stability and Development Committee of the State Council emphasized “combating Bitcoin mining and trading” at a meeting on May 21, the crypto market has turned cold, and Tether has not issued new USDT for several weeks.

According to analysts and market participants, the sudden suspension of Tether issuance actually shows that Bitcoin is facing three unprecedented challenges that threaten its dominance. The combination of these three unprecedented challenges has triggered a sweeping USDT. Storm. First of all, China’s crackdown on crypto assets is due to USDT’s success largely due to its dominant position among Chinese traders and investors, but now it is difficult for traders to buy USDT with fiat currency; second, USDT is the most One of the promising competitors, USDC, seems to be gaining market share; third, there is increasing regulatory pressure around the world.

In addition, it is worth mentioning that Ryan Watkins also noticed that although USDT is still the king, its dominance is gradually fading over time.

U.S. regulation is on the way

“Stablecoins need a proper regulatory framework.” Jerome Powell said that stablecoins are like money market funds and other investments, but they are not regulated. Stablecoins need to be regulated in a similar way to money markets and bank deposits.

He also pointed out that when the United States launches a sovereign Crypto currency, it may make cryptocurrencies such as Bitcoin or stable currencies such as Tether unnecessary. Jerome Powell made it clear that although the central bank is continuing to study the feasibility of the Crypto dollar, it will not be forced to launch a Crypto dollar or succumb to external pressure from other countries.

Not long ago, Randal Quarles, the vice chairman of the Federal Reserve in charge of oversight, said that concerns about stablecoins are “completely solvable” and that central bank cryptocurrencies will pose a major challenge to the banking system, and stablecoins may trigger Financial stability risks, in the absence of clear beneficiaries, the Fed’s Crypto currency faces significant risks.

In response, Hong Hao, the managing director and head of the research department of Bank of Communications International, said on Weibo that Randall Quarles’ speech on crypto assets, especially his views on stablecoins and cryptocurrencies, he believed that stablecoins It has a stimulating effect on the circulation of the dollar, but it will further consolidate the hegemony of the dollar. Other countries will also develop their own stablecoins, and the Federal Reserve has always encouraged innovation in the private sector. “It seems that the Fed’s attitude towards cryptocurrency is not to regard it as illegal, nor does it think it can challenge the U.S. dollar and will gradually develop a Crypto dollar.” He said.

At the same time, some Americans believe that stablecoins may trigger a crisis in the future.

“Stablecoins are a potential source of future financial stability risks. Many stablecoins are actually not stable.” said Eric Rosengren, chairman of the Boston Federal Reserve Bank.

Eric Rosengren pointed out that Tether could become a “disruptor” in the short-term credit market. In an interview with Yahoo Finance, he said that we should be a little worried about stablecoins because they are growing very rapidly, so stablecoins are growing exponentially.

It is worth mentioning that senior investor Mark Mobius said in an interview with the media that if the Federal Reserve decides to rapidly reduce asset purchases, he expects the financial market, especially cryptocurrencies such as Bitcoin and Ethereum, to fall.

Mobius said that anyway, they are actually doing a little bit of reduction, but if it is done quickly and suddenly, it could greatly affect the market because people will look for funding later, but it’s not there. The money will be unusable.

He believes that when this happens, cryptocurrencies will be severely hit, which will affect the psychology of many people, especially those young people who have invested a lot of money in crypto assets.

Different countries have different attitudes

From a global perspective, although regulatory policies have been introduced one after another, various countries have different views and measures on strengthening the supervision of stablecoins.

Reuters recently reported that Japanese regulators have expressed concern about the large-scale growth of the cryptocurrency market, especially warnings against stablecoins. According to reports, three Japanese officials said that Tokyo is willing to cooperate with global financial regulators to establish stricter rules for private cryptocurrencies and implement stricter supervision of stablecoins linked to legal tender. An official said: “With the rapid development of global cryptocurrencies, Japan can no longer stand by.” Reuters revealed that Japan’s Ministry of Finance is considering increasing its staff to review stable currencies globally. A new department was established to oversee cryptocurrencies.

In addition, under the domestic “combat Bitcoin mining and trading behavior” and resolutely prevent individual risks from being transmitted to the social field, stablecoins will naturally be strictly regulated.

On July 16, the People’s Bank of China released the “White Paper on China’s Digital RMB R&D Progress”, citing the latest data from the CoinMarketCap website (as of July 15, 2021), according to incomplete statistics, the current influential cryptocurrency There are more than 10,000 species with a total market value of over 1.3 trillion US dollars.

The “White Paper” pointed out that in response to the large volatility of cryptocurrency prices, some commercial organizations have launched so-called “stable currencies” in an attempt to maintain currency stability through anchoring with sovereign currencies or related assets. Some commercial organizations plan to launch a global stablecoin, which will bring many risks and challenges to the international monetary system, payment and settlement system, monetary policy, and cross-border capital flow management.

In addition, Fan Wenzhong, former director of the International Department of the China Banking Regulatory Commission, issued an article “The Future of Stable Coins and Central Bank Digital Currency”, stating that theoretically, the design of various stable coins is innovative in some aspects, and many trading mechanism designs have positive significance. However, from the actual effect, these stablecoins have not played the true value of promoting the exchange of social commodities and the improvement of welfare effects, and it is still difficult to become a universal payment tool in the commodity society.

The difference is that some countries regard stablecoins as a financial innovation and believe that there is no need to fear stablecoins.

British Chancellor of the Exchequer Rishi Sunak shared his views on the implementation and potential of Crypto assets in the UK. He stated that the introduction of security support for cryptocurrencies and stablecoins requires “groundbreaking reforms.” Rishi Sunak said that due to the dispute between the European Union and the United Kingdom over Brexit, this will force the United Kingdom to take independent measures in the development of crypto assets.

At the same time, the El Salvador government recently plans to launch a local cryptocurrency before the end of this year, similar to a stablecoin issued by the state, which is currently called “Colón-Dollar”. However, there is currently no evidence that the government plans to replace the U.S. dollar with Colón-Dollar, but hopes to allow the national cryptocurrency to enter circulation before the new year.

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