In addition to a possible regulation of cryptocurrencies, stablecoins are now also being targeted by the supervisory authorities. It goes without saying that the Stablecoin Tether (USDT), which is the largest in terms of market capitalization, also makes it into the center of attention. Yesterday, Thursday, November 25, 2021, Tether announced via Twitter that the company would like to work with the authorities. The aim is to allay concerns about stablecoins. According to a letter from US Senator Sherrod Brown, it is particularly about protecting investors.
Stablecoin operators in their sights
In a press release from US Senator Sherrod Brown on November 23, 2021 it was announced that he had written to various stablecoin operators and exchanges. In terms of content, he wanted to find out how companies protect their investors. The recipients included Coinbase, Gemini, Paxos, TrustToken, Binance.us and Tether.
With the aforementioned tweets, Tether reacted promptly to the press release. The company stated that they are striving to comply with the necessary regulations. This is intended to reassure the regulatory authorities.
Circle, the third strongest stablecoin in terms of market capitalization, also announced at the beginning of the year that it wanted to become more transparent. Thus, they want to meet the standards of accountability. In addition, the Circle operators emphasized an intensive cooperation with the supervisory authorities.
Dangers from stablecoins
The same problem is always at the center of the threat for the supervisory authorities. In addition to Bitcoin and Co., they fear a threat to national currencies from stablecoins in particular. In addition, there is the risk of cross-border economic problems. As a result, several countries are preparing for stablecoin regulation, or at least a review of these particular assets.
The focus of attention - and this is where investors should stop too - is predominantly, repeatedly, the dollar backing of USDT. Its market capitalization is currently around 72 billion US dollars. The question now arises whether Tether is actually covered by real US dollars. And this question is actually not that easy to answer. Various assumptions about this theory are circulating on the Internet, but hardly anything can be proven.
Stablecoin regulation inevitable
The flow of news regarding the regulatory issue has been enormous in the past few months. Even the G20 countries wanted to work towards regulating stablecoins. The main focus was on checking approval before using the coins. The custodians of the national currencies pointed out that it was absolutely necessary to introduce the digital central bank currencies (CBDCs) before the worldwide use of stablecoins . After it was recently announced that the European Central Bank's “digital euro” would not be introduced until 2026, the plan is unlikely to come of anything.
And yet, individual governments are working meticulously to regulate stablecoins in addition to other crypto currencies. The US government in particular is making efforts in this regard. Late last month it was even reported that the SEC was planning to crack down on the stablecoin market, but there has been little news since then.
Conclusion: stablecoins before widespread public acceptance
Now that Facebook also wants to bring its own stablecoin to the market with its Diem project, the acceptance of the market in society is likely to increase. If the company can incorporate the large user base, the general public will gain acceptance for the stablecoin idea. All other cryptocurrencies can then benefit from this.
Furthermore, the question arises to what extent regulatory authorities can and will intervene in technical inventions and new products in a liberal market economy. Regulators are concerned that they will lose central power over the financial system and the privilege to print money. It is likely, however, that a parallel system will occur.
Those cryptocurrencies and thus also stablecoins will be available parallel to the existing monetary system. In the not too distant future, we will see which (financial) system will receive more trust from the population. The fact is that as of today it is not entirely clear what would happen if suddenly all citizens wanted to have their euros paid out to them at the same time. Here, too, there would probably be at least a bottleneck.
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