Summary:
-Next Monday, US Treasury Secretary Yellen will meet with the highest regulatory agency to discuss the issue of stablecoins.
-Government officials have always expressed concerns about stablecoins, especially Tether.
Stablecoins are increasingly attracting the attention of US regulators. As government officials continue to raise alarms about stablecoins, U.S. Treasury Secretary Janet Yellen announced plans to convene the Biden administration’s Presidential Financial Markets Working Group (PWG), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation Discuss cross-departmental work on stablecoins. The group will meet on July 19 (next Monday). Yellen said, “Bringing together regulators will allow us to assess the potential benefits of stablecoins, while mitigating the risks they may pose to users, markets, or financial systems. Given the rapid growth of Crypto assets, institutions must focus on this area. The PWG will review the current supervision of stablecoins, identify risks and make recommendations to address these risks. It is expected to issue written recommendations in the next few months.
Note: The President’s Working Group on Financial Markets (PWG) consists of US Treasury Secretary Yellen, US Securities and Exchange Commission (SEC) Chairman Gary Gensler, Federal Reserve Chairman Jerome Powell (Jerome Powell) and Commodities Formed by Rostin Behnam, acting chairman of the Futures Trading Commission (CFTC).
A stablecoin is a cryptocurrency that is “anchored” to another currency (usually a physical currency such as the US dollar). The idea is that the value of the stablecoin is consistent with the exact price of the anchored currency in order to maintain “stability.” However, due to some unpredictable factors in the broader encryption market, this is not always possible in reality. However, unlike Bitcoin, stablecoins usually only fluctuate slightly, and Bitcoin may lose 20% of its value on a particularly tragic day.
Tether (USDT) is a stablecoin pegged to the U.S. dollar and is currently the third largest cryptocurrency by market capitalization. Many crypto exchanges offer USDT trading markets instead of U.S. dollar trading markets as a way to avoid dealing with fiat currencies.
However, the company behind USDT faces questions about its business practices and whether its anchoring is truly backed by the U.S. dollar. The company initially claimed that every USDT issued was backed by “traditional currency” 1:1, but it turned out that this was not the case. The reality is that Tether is mainly backed by commercial paper or short-term debt from unknown parties.
Tether, which has never undergone a full audit, is also facing legal proceedings for this. On February 23 this year, crypto companies Bitfinex and Tether have reached a settlement with the New York State Attorney General’s Office on the Tether case that began two years ago . Bitfinex and Tether did not admit any wrongdoing and agreed to pay $18.5 million as part of the settlement. Bitfinex and Tether stated that they provided more than 2.5 million pages of documents to the New York State Attorney General’s Office to settle the matter. As part of the settlement agreement, Tether will voluntarily provide the New York Attorney General’s Office and the public with an update on the USDT reserve support.
Subsequently, on May 13, Tether disclosed its reserve details for the first time since its launch in 2014 . As of March 31, 2021, Tether’s reserves contain nearly 76% of cash and cash equivalents, as well as other short-term deposits and commercial paper. The rest are secured loans, bonds and other investments, including cryptocurrencies such as Bitcoin (only Bitcoin). Specifically, commercial paper constitutes the majority of its cash and cash equivalents, accounting for 65% of the share. Trust deposits accounted for 24%, reverse repurchase notes accounted for 3.60%, treasury bills accounted for about 3%, and actual cash only accounted for 3.87%.
In a recent congressional hearing , Powell used Tether as an example to explain why stablecoins should be more regulated: “If they (stablecoins) will become an important part of the payment field – we don’t think that crypto assets will be so. But stablecoins might—then we need a proper regulatory framework. But frankly, we don’t have one at the moment.”
From the data point of view , the development of stablecoins cannot be underestimated. 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. Although USDT is still king, its dominance is gradually fading over time.
In the past, regulators continued to put pressure on it, and later competitors caught up. Is Tether ready to meet the challenge?