Group items matching

in title, tags, annotations or url

Circle, which along with Coinbase issues the USDC stablecoin, is coordinating with the US government and Latin America crypto exchange Airtm to route aid for Venezuelan healthcare workers through the Latin American country's government in exile. The US Treasury and Federal Reserve releases seized funds to the exiled government's account at a US bank. The exiled government then uses those funds to mint USDC. The USDC is then sent to Airtm Once the USDC stablecoins hit Airtm wallets, they go to Venezuela healthcare workers in the form of AirUSD, Airtm's own fiat-backed stablecoin. Recipients can then withdraw at banks, send the funds, or spend them online.

Tether (USDT), with a market cap surpassing $16 billion, continues to hold the lion's share of stablecoins in circulation, but two smaller rivals are trouncing it in crypto's hottest market this year, decentralized finance (DeFi). Measured by the total value locked in six of the most popular DeFi protocols - Compound, Maker, Uniswap, Curve, Aave and Balancer - USD coin (USDC) is in the lead among stablecoins followed by dai (DAI), the native stablecoin to MakerDAO. USDC and DAI have market caps of $2.74 billion and $608 million, respectively.

Wyoming recently awarded its second special-purpose depository institution (SPDI) charter to Avanti Bank. One of the most notable products that Avanti intends to offer is the "Avit" stablecoin "disruptor." Avanti Bank's Avit will be a tokenized, programmable US dollar. Becasue Avit will be issued by, and be a direct obligation of, a bank, making it an electronic version of a traditional bank note. This means the Avit can be used in software applications like other stablecoins but may be considered more reliable than traditional stablecoins because users can trust that the deposits backing the Avit are held in the same state chartered financial institution that issued the instrument. Critically, if the Avit is a bank note it is also exempt from regulation as a security by the SEC. One legal wrinkle is that Article 3 of the Uniform Commercial Code (UCC), which governs bank notes, has never before been directly extended to electronic negotiable instruments such as digital bank notes. Nevertheless, there is an argument that Article 3 provides the necessary legal framework for banks to issue a variety of electronic negotiable instruments, including digital certificates of deposits. One could argue that a bank issuing a product with features similar to a stablecoin is really just a new form of a traditional bank activity.

The Federal Deposit Insurance Corp. (FDIC) is reportedly studying whether certain stablecoins might be eligible for its coverage. The agency is trying to analyze what so-called pass-through FDIC insurance might look like for the reserves that stablecoin issuers hold at banks. Such coverage would insure holders of the tokens against losses up to $250,000 if the bank holding the collateral were to fail. The FDIC is also looking at what regular, direct deposit insurance might look like for banks that want to issue stablecoins.

Members of the USDF Consortium met with senior officials of the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. about how to issue a regulatory-compliant stablecoin. The group's approach is purportedly consistent with the recommendations of the President's Working Group that stablecoin be issued only by insured depository institutions. The Consortium's USDForward (USDF) stablecoin would be issued, and backed, by dollar deposits at U.S. banks. The USDF Consortium is an association formed by Figure Technologies, JAM FINTOP, and a group of FDIC-insured banks. USDF is currently being used on the Provenance Blockchain in a limited scope to facilitate the real-time, bilateral settlement of transactions.

A new C.D. Howe Institute report advocates for the Bank of Canada issuing central bank digital currency (CBDC) to facilitate the emergence of Canadian dollar stablecoins. The report explains that Canadian-dollar-linked stablecoins could become attractive to Canadians by making them convertible into Bank-issued cash, and ensuring that the stablecoins are well designed and regulated from business conduct, competitive, operational, privacy and prudential perspectives.

Ripple has provided more details on the U.S. dollar-backed Palau Stablecoin (PSC) proof-of-concept (PoC). Each PSC will be valued at one U.S. dollar guaranteed by a 1:1 reserve in fiat currency and issued on Ripple's XRP Ledger (XRPL). Palau's Ministry of Finance (MOF) will supervise the system and trigger the issuance and redemption of stablecoin units, while always guaranteeing the 1:1 reserve. The PoC will roll out in phases, with the first three-month phase involving about 200 government employees and local merchants. If the first phase is successful,  additional phases will roll out later in the year (2023). https://www.palaugov.pw/wp-content/uploads/PALAU-STABLECOIN-FAQs-2.17.23.pdf

The Monetary Authority of Singapore (MAS) published the features of a new regulatory framework that seeks to ensure a high degree of value stability for stablecoins regulated in Singapore. It will apply to single-currency stablecoins (SCS) pegged to the Singaporean dollar or any G10 currency. SCS reserve assets will be subject to requirements relating to their composition, valuation, custody and audit, to give a high degree of assurance of value stability. SCSs must hold minimum base capital of 1 million Singapore dollars ($740,000) and provide redemption within no more than five business days of a request. https://www.mas.gov.sg/news/media-releases/2023/mas-finalises-stablecoin-regulatory-framework

"Stablecoins could offer central banks a shortcut to having their own digital currencies, according to the NY Fed's Antoine Martin. "Instead of issuing a retail [central bank digital currency], central banks could support Stablecoins by allowing them to be backed one-for-one with balances in a central bank account... Adapting our regulatory and legislative environment to support Stablecoins is already a formidable task, but it is probably easier than managing a CBDC for retail use, especially as the private sector currently provides all retail digital means of payments on legacy technology."

According to the New York Fed's Antoine Martin, "instead of issuing a retail central bank digital currency (#CBDC), central banks could support stablecoins by allowing them to be backed one-for-one with balances in a central bank account. They could also facilitate a bankruptcy remote legal structure to ensure that end-users are paid in full even if the issuer becomes bankrupt. Such stablecoins could be a close substitute for central bank digital money, while balances in a central bank account are risk free and could earn interest. Though stablecoin issuers should be subject to some oversight in exchange for access to a central bank account."

U.K. lawmakers agreed on new rules for stablecoins, as the government promised to consult on further crypto-asset regulations and a digital pound in coming weeks. The Financial Services and Markets Bill builds upon existing measures to broaden regulations of stablecoins and mentions "Digital Settlement Assets" (DSA) as a new term, moving away from the use of "crypto assets." According to the U.K. government, "crypto assets use some form of distributed ledger technology (DLT)," whereas DSA includes stablecoins, "given their potential to develop into a widespread means of payment."

Paxos will now disclose on a monthly basis the specific financial instruments backing its USDP and BUSD stablecoins, in addition to its attestations. These reports will provide the CUSIP numbers of all instruments backing USDP and BUSD, showing that Paxos only backs its stablecoins with cash, overnight loans secured only by US Treasuries, and US Treasuries with a less than 90 day maturity. As a Trust Company chartered by the New York State Department of Financial Services ("NYDFS"), Paxos is legally required to hold all regulated stablecoin reserves in bankruptcy remote, fully-segregated accounts and in only cash and cash equivalents.

"We develop a two-country New Keynesian model with endogenous currency substitution and financial frictions to examine the impact on a small developing economy of a stablecoin issued in a large foreign economy. The stablecoin provides households in the domestic economy with liquidity services and an additional hedge against domestic inflation. Its introduction amplifies currency substitution, reducing bank intermediation and weakening monetary policy transmission, worsening the impacts of recessionary shocks and increasing banking sector stress. Capital controls raise stablecoin adoption as a means of circumvention, increasing exposure to spillovers from foreign shocks. Unlike a domestic CBDC, a ban on stablecoin payments can alleviate these effects."

Japan's parliament passed a bill that classifies stablecoins as digital money that must be linked to a currency that is legal tender and guarantee holders the right to redeem them at face value. The legal definition means stablecoins can only be issued by licensed banks, registered money transfer agents and trust companies. The new legal framework will take effect in a year, and Japan's Financial Services Agency will introduce regulations governing stablecoin issuers in coming months.

"Design flaws in the no-arbitrage mechanism contributed to the failure of the IRON stablecoin. That said, the design flaws we uncover in this paper are not easily fixed. For instance, using the spot price as opposed to the ten-minute weighted-average price of TITAN in the creation of IRON is susceptible to manipulation of the spot price. It remains to be seen whether future generations of algorithmic stablecoins can improve these issues. For now, our results serve as useful reminder that some stablecoins are not stable at all, particularly for the users of smaller accounts who bought into the falling knife when IRON was tumbling."

"In conclusion, design flaws in the no-arbitrage mechanism contributed to the failure of the IRON stablecoin. That said, the design flaws we uncover in this paper are not easily fixed. For instance, using the spot price as opposed to the ten-minute weighted-average price of TITAN in the creation of IRON is susceptible to manipulation of the spot price. It remains to be seen whether future generations of algorithmic stablecoins can improve these issues. For now, our results serve as useful reminder that some stablecoins are not stable at all, particularly for the users of smaller accounts who bought into the falling knife when IRON was tumbling."

Cryptocurrency investors and traders have been cashing out of the stablecoin Tether (USDT) in the wake of the TerraUSD (UST) debacle. There has also been a flight to large centralized US-domiciled stablecoins like Binance USD (BUSD) and USD Coin (USDC), with monthly attestations and 100% treasury bill backing, and a flight away from Tether (USDT) with less-frequent attestations and riskier backing, and DAI and other decentralized stablecoins.

"For stablecoins to flourish as widely used payment vehicles they require a proper regulatory framework. A good starting point is to adhere to the principle of "same risk, same activity, same regulation." Another worthwhile principle is to not recreate the wheel. With this in mind, this Commentary offers some suggestions as to how stablecoins and their issuers could be regulated using the existing regulatory frameworks that are applied to retail payments-system providers and deposit-taking institutions. These existing frameworks include the Bank Act, its provincial statutory counterparts, and the relatively recent Retail Payments Activities Act. We paraphrase the Financial Stability Board's high-level recommendations for global stablecoins - many of which apply in a domestic setting as well - and assign the legislation/recommendations/authority based on the Canadian context." [Jeremy Kronick & Mark Zelmer, CD Howe]

"Earlier this week, the House Committee on Financial Services held a hearing on stablecoins or digital assets tied to fiat currency. The Hearing was driven by the recent report by the President's Working Group (PWG) on Financial Markets. While stablecoins are not (yet) systemically worrisome, the market has grown to $174 billion in market capitalization. stablecoins currently represent more than 75% of trading on all digital asset trading platforms."

"Why are interest rates on dollar-pegged stablecoins so much higher than interest rates on actual dollars? You'd think that a stablecoin worth a dollar would command the same interest rate as a dollar, namely zero. But a quick search of lending rates on stablecoins reveals rates of anything from 9% to 13%, or even more."