Cryptocurrency market is suffering Big setback In the last few months. Cryptocurrency totals have fallen more than half since they peaked at around $ 3 trillion in November 2021. Cryptocurrencies have followed the same downtrend as speculative tech stocks, thereby failing to provide effective hedging against the risks of these stocks.
Stablecoin plays a central role in the crypto ecosystem by acting as the primary payment medium for transactions, including cryptocurrencies, loans, and other transactions. Asset-backed Stablecoin promises to maintain a 1: 1 equivalence with the designated fiat currency (usually the US dollar) by holding an investment reserve. The algorithm Stablecoin promises to maintain similar parity based on the cross-trading arrangements between Stablecoin and the connected cryptocurrencies.
Stablecoin has not been stable during the recent market turmoil. The algorithm stablecoin Terra and its associated Luna cryptocurrency collapsed in the second week of May, Loss of over $ 40 billion To investors. Tether, the largest asset-backed stablecoin, dropped to 95 cents per coin on May 12th. Regain equivalence with the US dollar.. Between April 29th and May 31st, the total value of Tethercoin decreased from $ 83 billion to $ 77 billion, and the total value of Tether and 14 other major stablecoins was Decreased from $ 181 billion to $ 155 billion..
The collapse of Terra and the wobbling of tethers provide a clear warning about the risks Stablecoin poses to our financial system and economy. Stablecoin holders can incur significant losses during the investor’s execution caused by concerns about the coin’s ability to maintain equivalence with the designated fiat currency. The investor’s execution that destroyed Terra was similar to the volatile execution that occurred in money market funds in 2008 and 2020. Like stablecoins, money market funds do not have government guarantees and investors can panic if: The market value of reserves is significantly reduced..
Many institutional investors own cryptocurrencies, and the cryptocurrency market is Extensive established links For traditional financial intermediaries and payment systems. If Stablecoin is widely accepted as a payment method for consumers and commerce, these connections will become widespread. The collapse of major stablecoins such as tethers can unleash systematic panic in financial markets, weaken payment systems and inflict widespread losses on consumers, businesses, investors and financial institutions. ..
Stablecoin is a “shadow deposit” that acts as a functional alternative to bank deposits. Many stablecoin providers are “shadow banks” because they offer lending, transactions, and other financial services that mimic the activities of banks. However, stablecoin providers do not have to be chartered as a bank or comply with banking laws that protect the stability and integrity of the banking system. As Stablecoin continues to grow, it will become a system-critical “private money” category, such as money market funds. Money market funds do not have explicit government support, but rely on assumptions that are widely endorsed by the government. Relieve them During a serious economic turmoil.
We must force stablecoin issuers and distributors out of the shadows and obey the rules governing banks. You need to get a bank charter and request a stablecoin provider to meet government deposit insurance requirements, including payment of deposit insurance premiums. Stablecoin providers must be inspected and supervised as a bank and must meet the bank’s safety and integrity criteria, including capital and liquidity requirements. They must comply with consumer protection laws and be subject to a bankruptcy system that manages bank failures. Stablecoin provider owners must comply with the restrictions and responsibilities that apply to bank owners under the Bank Holding Company Act and other laws.
Some policy makers argue that it is sufficient to require stablecoin providers to follow the rules of money market funds. That would be a big mistake. Our regulations on money market funds are clearly inadequate and should not be extended to stablecoin providers.
Money market funds, such as stablecoin providers, accept “shadow deposits” without complying with banking law. Money market funds have experienced major problems whenever the market value of their reserves could not be maintained at the same level as the US dollar or another fiat currency. The government has bailed out money market funds twice on both sides of the Atlantic over the last 14 years.We should not obey Same failed strategy with stablecoin..
Many stablecoin providers probably couldn’t qualify for a bank charter and couldn’t comply with banking rules. Those providers will have to leave our financial system and their departure will be a welcome development. If you want to avoid a systematic crisis and maintain a stable financial system that protects investors and consumers, require providers of services such as deposits to comply with the laws that protect banks and their customers. is needed.
When policymakers around the world regulate stable coins in the same way as bank deposits, thereby promoting the objectives of financial stability, depositor protection, market integrity, and avoidance of government-funded bailouts. Is coming.
Signed by President Biden Presidential directive In March 2022, we evaluated the risks and benefits of digital assets to federal agencies, not only for the stability and completeness of the US financial system, but also for consumers, investors and businesses. He requested that a regulatory approach of “mitigating certain risks” be recommended. April 2022, UK Government Announced plan Recognizing Stablecoin as a valid payment method as part of a broader agenda to make the UK a global hub for digital asset technology and investment.European Union Pending proposal Cryptocurrency market regulation aims to establish a regulatory framework and common supervision architecture for crypto asset issuers and providers. Demanding regulation of stablecoin providers as a bank must be a central element of all three initiatives.
Rosa Rustra is Chairman of Sir John Lubbock of the Banking Act of Queen Mary University of London. Arthur E. Wilmers Jr. is an emeritus professor of law at George Washington University Law School.