The United States President’s Working Group on Financial Markets, operating as part of the U.S. Treasury Dept. issued a “Statement on Key Regulatory and Supervisory Issues Relevant to Certain Stablecoins.” The President’s Working Group on Financial Markets is responsible for enhancing the “integrity, efficiency, orderliness, and competitiveness” of US financial markets.
According to the working group, the new regulations specifically target stablecoins:
“These requirements address a range of policy objectives, including safety and soundness, countering illicit finance, end-user protection, and market integrity. In particular, stablecoin arrangements with greater potential scale, complexity, and interconnectedness should consider.”
Why is the Group Considering the Regulation?
The document states that the group views stablecoins as a potential regulatory risk. The document states:
“Depending on its design and other factors, a stablecoin may constitute a security, commodity, or derivative subject to the U.S. federal securities, commodity, and/or derivatives laws. If so, the federal securities laws,3 and/or the Commodity Exchange Act (“CEA”),4 would govern the stablecoin itself, transactions in, and/or participants involved in the stablecoin arrangement. Whether a stablecoin is a security, commodity, or derivative will depend on the relevant facts and circumstances.”
All stablecoins won’t be considered securities or derivatives, but they may be depending on their makeup.
This statement is significant given the members that make up the President’s Working Group of Financial Markets. They include the Secretary of the Treasury, the Chairperson of the Board of Governors of the Federal Reserve, the Chairperson of the Commodity Futures Trading Commission, and the Chairperson of the Securities Exchange Commission (SEC).
One notable member is SEC Chairperson Jay Clayton, who, as head of the watchdog, was involved in the recent charges brought against Ripple. On Wednesday, the SEC filed a suit against Ripple and two of its top executives for conducting an unregistered sale of securities.
The SEC states that they perceive XRP, the native currency of the Ripple network, to be a security and not a currency like bitcoin or ethereum.
This classification means that Ripple, it’s co-founder, and current CEO are responsible for the sale of unregistered securities and will be held accountable.
As the cryptocurrency market continues to mature, regulatory bodies will likely scrutinize cryptocurrencies with additional oversight.
What is a Stablecoin?
Summary: Stablecoins are a new class of digital currency. Although the concept of stablecoins was considered years ago, only recently has it received widespread attention. Stablecoins refer to a collection of currencies that derive their value solely from an external reference point. Stablecoins can best be classified on the basis of their underlying working mechanisms, namely, Fiat-collateralised, algorithmic, and cryptohash-based stablecoins. The Fiat-Collateralised variety are the most widely recognised stablecoins as they trade against financial instruments like credit and deposit bills. The algorithmic variety of stablecoins, on the other hand, trade against a basket of global currencies (the basket of which they are traded) and are not linked to any particular financial instrument.
One of the advantages associated with stablecoins is their use as an asset. By understanding which option provides the best fit for your circumstances, you will be able to effectively hedge against any potential financial setbacks. When looking at buying, selling, or trading a stablecoin, it is important to consider the factors surrounding the particular coin. Another factor that is crucial is to determine whether one wants to purchase, sell, or trade non-collateralized stablecoins – these are coins that are not backed by any collateral such as certificates of deposit or bank notes. Finally, it is important to consider whether one wants to invest in algorithmically-derived stablecoins (which trade on algorithms instead of actual commodities) or non-algorithmic stablecoins (which trade based on supply and demand fundamentals).