According to New York Times, the rush to bring “systemically risky” stablecoins under regulatory control might be “the most important conversation in Washington financial circle this year.”

Despite having a link to government currencies like the US dollar, stablecoins are built more like “risky investments” and are currently under-regulated. “Stablecoins have moved from virtual nonexistence to a more than $120 billion market in a few short years, with the bulk of that growth in the past 12 months,” the article claimed.

US regulators seeking the matter of stablecoins might be a huge shift in the crypto market. On one side, stablecoins’ regulation could add to investor comfort and grasp the market value surge. On the other side, its regulations could make investors feel overly controlled which could decrease investments in the newly emerging industry.

According to the Washington regulators, stablecoins aren’t necessarily currencies or commodities, which are subject to a lesser amount of hostile regulation than securities or derivatives. They further stated: "Depending on its design and other factors, a stablecoin may constitute a security, commodity, or derivative subject to the U.S. federal securities, commodity, and/or derivatives laws."

Treasury Deputy Secretary Justin Muzinich announced, “The statement reflects a commitment to both promote the important benefits of innovation and to achieve critical objectives related to national security and financial stability."

As the NY Times article suggested, there are five ways of regulation that could be used to control stablecoins. Those are by designating the stablecoins as “systemically risky” or as “maybe well securities”, treat them as money market mutual funds or as banks; and issue them as CBDC (Central Bank Digital Currency).

However, no matter what path the US regulators take, they can’t go it alone. The stablecoins couldn’t just move elsewhere with international cooperation or stablecoin regulation. Such international regulation will probably come in 2023 when the global Financial Stability Board is targeting the final adoption of stablecoin regulations it’s working on, the Times predicted.

Acting Comptroller of the Currency Brian Brooks stated this matter, "The group reached a productive balance recognizing the valuable and important role stablecoins are playing in our national and global economies and the need to ensure such financial tools do not contribute to crime or national insecurity."

Joyashree Dey

CBW - External Analyst

INDIA