Diverse Regulations Mean All Stablecoins Are Not Created Equal
International regulations on stablecoins are already mess.
No one wants a stablecoin future more than I do; I see them as a key component of our “shared cashless future.”
The problem is that all stablecoins are not created equal under the laws in which they are issued, which means significant differences in reserving and custody.
This matters because stablecoins had a total market cap of around $140 billion last month, or 8% of the total crypto market.
The problem is that “stable” is somewhat relative, as BIS research showed that no stablecoin has been able to maintain parity with its peg at all times in the secondary markets!
So the BIS says more international coordination is required to ensure stability, but we all know that won’t happen.
Instead, expect a world where stablecoin values float and one is worth micro cents more or less than another or where one is accepted, and another refused.
👉TAKEAWAYS
🔹While stablecoins might bring a range of benefits, they also introduce significant risks.
🔹Many regulatory approaches have similar key requirements for stablecoin issuers.
Most follow two types of authorisation regimes that allow stablecoins to be issued by: (i) banks and certain nonbank financial institutions; and/or (ii) a new type of financial entity holding a crypto-specific license
🔹There are relevant differences in regulatory regimes that could lead to a need for more consistency and coordination in the oversight of stablecoins across jurisdictions.
The terminology used to define stablecoins varies significantly as does the treatment of reserves and in relation to segregation and custody.
🔹As the adoption of stablecoins increases, preventing regulatory fragmentation and achieving a harmonious coexistence of different types of digital assets will become more important.
National regulators can’t even agree on who can issue a stablecoin, meaning that not all stablecoins are created equal.
👊STRAIGHT TALK👊
Stablecoins are great tech, but as always, “the devil is in the details.”
That the BIS is calling for greater regulatory cooperation on how they are issued is good!
The problem is that jurisdictions like Singapore and the EU MiCA regulations have already been issued, and while revising them is possible, I don’t see this happening anytime soon.
The reality is that stablecoins will not be the same, and we can expect their usage to be anything but universal or easy.
It will be very much like the old days when a shop took Visa but not Mastercard or American Express. Some will accept certain stablecoins for payment but not others.
This will be a problem because it breaks the “singleness” of money, meaning that a Euro in cash or digital CBDC is always a Euro.
The promise of monetary singleness is CBDC’s greatest advantage over stablecoins.
The BIS leaves out one critical point!
As most stablecoins are issued in US dollars, US regulators will set the standards, like it or not!
The BIS must know this.
Thoughts?
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