How will the United States keep a stable currency in 2022?

In 2019, the crypto industry that received the most recognition from international regulators is Stablecoins and the risks impacted by Stablecoins.

Recently, these concerns have increased, particularly in the United States.

In November 2021, the Board of Directors of the Financial Services Commission (PWG) released a critical report questioning the potential for “stabilization” and “compensation risk”. In December, the US Senate complied and held a hearing on the risks posed by Stablecoin.

During the hearing, the following issues were raised:Are American managers Stablecoins in 2022? If the answer is yes, is it governed by "blanket" federal law or by more detailed financial regulation? Additionally, how will this policy affect the non-bank issuers of Stablecoin and the entire crypto industry? Will Stablecoin issuers act like high end banks? for

White & Case partner Douglas Landy said:

"We are confident that the government will maintain a stable coin by 2022."

Rohan Gray, assistant professor at Willamette University School of Law, shares the same sentiment.

“Actually, the Stablecoin policy is coming soon. This will have a double impact. On the one hand, it will undermine the whole government. On the other hand, the Ministry of Finance and affected government agencies will do more.

However, there is also the implication that the speed of healing will not be fast. Salman Banaei, head of policy at cryptocurrency analysis firm Chainalysis, said:

"I don't think legalization will be possible until at least 2023. So the cloud for the Stablecoin market will stay with us for a while."

In other words, Salman Banaei predicts that the hearing in 2022 and the law "will prepare the profits of 2023".

Crypto assets are hot.

It is generally recognized that governance has increased. It doesn't just happen in America. Rohan Gray says:

"Other countries are presenting the same vaccine." Fuse is a Libra (now DM) project offered by Facebook in 2019. Along with the project, Facebook announced that it will establish its own global presence - which is a call to action to create rules. They made it clear that even though the crypto industry is a "small and small business" it cannot be done easily as it will not bring "risk".

Salman Banaei believes that the three most important things now rule the law of Stablecoins.

The first is the question of reserve guarantees.This issue is clearly spelled out in a report from the United States Financial Stability Review Board. According to Salman Banaei, some Stablecoin developers will provide unidentified information about their members in their announcements, which can immediately inform holders of these digital assets of the costs and ability to modify. As a result, the assets held by the Stablecoin issuers are drastically reduced.

The second problem is that Stablecoins support some of the assumptions.These actions consist in particular in combating the risks of non-regulatory ecosystems such as the DeFi application, which do not meet the same requirements as other digital assets. for

The third question is "Has Stablecoin been a legitimate contender for the payment model?" ", Stablecoin issuers will someday seek to provide a "complete payment solution" that will impact existing payment systems and banking providers.

Regarding Salman Banaei's second statement, American University lawyer Hilary Allen told the Senate last December that Stablecoins are not used to pay for goods and services in the real world, according to some Christians. Their main objective is to support the DeFi ecosystem. In fact, it is the shadow of the shadow banking that can really affect our business. for

Rohan Gray added:

"The development and growth of the cryptocurrency market has made Stablecoin increasingly important, but the development of Stablecoin compliance has been affected."

In fact, last year it was pointed out that there was a serious problem with the holding of Tether (USDT), the No. 1 stability market. It was later discovered that even well-mannered and well-behaved people could make a mistake on the property. For example, Circle, head of USDCoin (USDC), once claimed that Stablecoins was "back with a 1: 1 cash ratio." As a result, the New York Times estimates that 40% of Circle's real estate assets include US Treasury bonds, deposits, commercial papers, corporate bonds and municipal debt.

Rohan Gray adds:

“Over the past three months, the hype has reached a new level. This includes popular advertising of crypto assets and non-fungible tokens (NFTs).

Is the US Treasury Department Responsible for Stablecoins?

Jai Massari, associate of Davis Polk & Wardwell LLP, stated:

“2022 is too early for any federal law or regulation for Stablecoin. On the one hand, it is election year in the United States. We think we'll see a lot of consensus happen. It is important for the design. "

Without significant federal legislation, the US Treasury Board could launch Stablecoins in 2022, including the US Securities and Exchange Commission, the US Commodity Futures Trading Commission, and other regulatory agencies. United States Office of Monetary Audit, Federal Deposit Insurance Corporation (FDIC), etc. In this case, non-bank issuers of Stablecoin may be subject to liquidity requirements, clients need protection and property rights, and must at least comply with short-term law. financial sector. for

Salman Banaei predicts that the US Treasury will actively monitor the Stablecoin market by 2022. At the same time, he believes that the US Treasury Department can “buy but not necessarily intervene in stable business”.

Can Stablecoin issuers become “depositories” with deposit insurance?

For the Stablecoin market, allowing people to see 'what happened' may be what causes Stablecoin traders to 'deposit' with insurance deposits, which is also stated in the Stablecoin Edition report. of the US Presidential Economy Working Group. Now US lawmakers have started calling for a similar resolution on some proposals, and Rohan Gray, for example, helped draft the “2020 Stability Act,” which addresses the issue.

Jai Massari believes that it is neither necessary nor desirable to apply restrictions such as Stablecoin defenders. In his testimony before the US Senate Banking, Housing and Urban Council, he said that "the real Stablecoin" is a "narrow bank". A form of financial strategy dating back to the 1930s, Stablecoin "does not use short-term funds for growth and exchange rates, for example, long-term loans and principal." So, in fact, Stablecoin banks are always more secure, he added.

"One of the great things a bank has always had is that it can take more deposits than short-term liquid capital investments. Risk."

This is why modern businesses should assess home equity payments before purchasing insurance with the Federal Mortgage Insurance Corporation (eg, an insurance deposit). . However, if Stablecoin limits its assets to cash or cash equivalents such as bank deposits and short-term US Treasury loans, it can be said to avoid "operational" risk and do not require insurance coverage.

However, there is no doubt that U.S. Treasury officials are still concerned about Stablecoin's ability to function. Here's what the US Security Council reiterated in its 2021 report, announced in December of last year:

"If the developer Stablecoin does not accept the redemption request, or the user loses confidence in Stablecoin, the developer is able to meet this request, completion will take place, which will result in consumers and the general budget. "

Douglas Landy says:

“In existing financial markets, deposit problems rarely occur. This is because the banks have already taken care of the problems of liquidity, reserves, investments, etc. Stabilitycoins. "

Salman Banaay dit:

“If a stable bank's cover is to be an insurance company (IDI), I think there are both pros and cons. For example, IDI can advertise Stablecoin. Protected by Federal Reserve Insurance Corporation., Technology providers must work closely with IDIs to ensure that IDIs and regulators become regulators. Stability and impactful business operations. "

Rohan Gray believes insurance policies will be introduced soon. He added:

“The Biden administration seems to have this idea and it is gaining more and more attention overseas. Japan and the Bank of England seem to like this point of view. These countries are not averse to risk. money, but also risky work. Stable coins are real. Because it contains a lot of computer code, it is a mistake and can still make mistakes. Managers don't want to harm consumers. "

What will happen next?

Looking to the future, Rohan Gray believes the Stablecoin ecosystem needs to be multifaceted and suggests that digital banking companies (starting in some countries) are embracing two paradigms. Second, he thinks some security holders, like Circle, need to get a license from a government bank. Ultimately, these companies will switch to a sort of “high-tech bank”. The differences between traditional businesses and financial equipment Businesses will get smaller and smaller.

In some cases, stablecoins and existing banks gradually merged. As traditional banks and cryptocurrency companies move closer together, the cryptocurrency industry will adopt certain technologies and solutions.

However, Douglas Landy appears to disagree with Rohan Gray.

"The ruling community hates the word Stablecoin, and if Stablecoin is controlled by the US government, the name will be removed.Why? So the name doesn't mean anything in Stablecoin. In the eyes of regulators and policymakers, the digital coins related to fiat gains are by no means a "stable" and they believe it can mislead users. "

DeFi, Algorithmic Stablecoins and other issues

In fact, there are many other issues in the cryptocurrency industry that need to be addressed.

Jai Massari, associate of Davis Polk & Wardwell LLP, stated:

“In the DeFi industry, restricting Stablecoins does not affect the native development of DeFi, but how they use Stablecoins remains a major issue. On the other hand, there are still Stablecoin algorithm issues. This type of Stablecoin is not supported.Based on legal results or product market, Relying on complex algorithms to control price stability, how do regulators solve this problem?

Rohan Gray believes the Stablecoin algorithm is "riskier" compared to algorithms supported by fiat currency, but the Stablecoin report by the President's Financial Services Task Force does not specify this issue. . The implication is that the "inheritance problem" will have something to do with the current algorithm. Stablecoin is not yet widely accepted.

Overall, there are still many differences in the way the Stablecoin market is run. In addition, if the rules established by regulators are too strict, they can interfere and limit the development of new technologies. Salman Banaei, Director of Research Policy at Chainalysis, concludes:

“I think there is a risk of over-regulation, especially as China tries to establish a digital banking system and the digital renminbi could become a universal payment network,” he said. . States and other regulators must regulate the process. Developing Stablecoins with care and making sure they ignore the importance of competition, destroying new areas for new developers. Supporting new developments is our foundation. We have to be careful to move our digital resources brazenly. "