Posted 1 week ago | by Catoshi Nakamoto
Earlier this week, the U.S. Treasury Department met with financial industry executives and some representatives of the crypto industry to discuss regulation, risks, and benefits of stablecoins, Reuters reported.
Washington lawmakers say they are “alarmed” at how fast the cryptocurrency market is growing according to people familiar with the meeting who spoke to Reuters. As of Friday, the market cap of stablecoins was at an estimated $125 billion, as per CoinMarketCap.
Regulation U.S. Lawmakers Meet With Crypto Industry To Decide Stablecoins
U.S. financial regulators are continuing to work to comprehend the risks and benefits that cryptocurrencies have on the traditional U.S. financial system and plan to release several reports in the coming months, sources told Reuters.
In a sign those efforts are gathering steam in Washington, Treasury officials this week met with industry leaders in crypto to discuss potential stablecoin regulation, three sources told the news agency.
Two of the people with knowledge of the meetings expressed that in the two meetings this week, officials questioned whether “stablecoins would require direct oversight of the Treasury if they become extremely popular,” the news publication writes. In addition, regulators discussed how they could mitigate the risks of too many people trying to cash in their stablecoins at the same time, also known as a bank run in the traditional finance world. They further postulated whether there should be requirements for major stablecoins to be backed by traditional assets.
The officials in the meetings also requested guidance on how stablecoins should be regulated, how they can be used for the benefits of commerce, whether the current regulatory framework is sufficient, and many more related questions, according to another source that spoke to Reuters.
Regulation U.S. Lawmakers Meet With Traditional Financial Industry To Decide Stablecoins
Officials additionally met earlier this week with a group of banks and credit unions to discuss many of the same questions, Reuters wrote. However, according to the publication, the Treasury officials appeared to be data mining during the meetings and did not share their own thoughts on how stablecoins should be regulated.
In a statement, Treasury spokesman John Rizzo told Reuters the department is examining “potential benefits and risks of stablecoins for users, markets, or the financial system.”
“As this work continues, the Treasury Department is meeting with a broad range of stakeholders, including consumer advocates, members of Congress and market participants,” he added.
In fact, these haven’t been the only meetings that the Treasury Department and other federal agencies have had. For the past several weeks regulators have been meeting to determine whether they should launch a formal review by the Financial Stability Oversight Council into whether Tether and other stablecoins threaten financial stability. Bloomberg notes FSOC has the power to deem companies or activities a systemic threat to the financial system — a label that typically sets off tough rules and aggressive monitoring by regulators.
“I urge FSOC to act with urgency and use its statutory authority to address cryptocurrencies’ risks,” Senator Elizabeth Warren wrote in a July 26th letter to Yellen which noted the stablecoin market’s interconnectedness and its susceptibility to investor runs. “The longer that the United States waits to adapt the proper regulatory regime for these assets, the more likely they will become so intertwined in our financial system that there could be potentially serious consequences.”
This follows two months after researchers at Yale and the Federal Reserve published a document entitled: “Taming Wildcat Stablecoins” on SSRN’s eLibrary, proposing how to address “systemic risks created by stablecoins, including regulating stablecoin issuers as banks and issuing a central bank digital currency.”
Regulation Is Coming Comments Made By Fed, Treasury, and SEC
In July, Treasury Secretary Janet Yellen expressed that the government needs to “move quickly to establish a regulatory framework for stablecoins,” Bloomberg reported.
Jerome Powell, chairman of the Fed Reserve recently called for stablecoin regulation in a congressional hearing stating, a “strong regulatory framework” was needed.
“We have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset. We have a pretty strong regulatory framework for bank deposits for example or money market funds.” Powell said during a virtual hearing before the House Financial Services Committee. “That doesn’t exist for stablecoins, and if they’re going to be a significant part of the payments universe…then we need an appropriate framework, which frankly we don’t have,” he added.
The Fed Reserve has also said that it plans to release a report later this month on crypto digital assets, CBDCs, stablecoins. In response to a question from Patrick McHenry (R-N.C.) in a congressional meeting in July, Powell said the report will outline the benefits and risks of CBDCs, as well as cryptocurrencies and stablecoins.
During the Aspen Security Forum conference last month, even U.S. SEC Chairman lizard man himself Gary Gensler begged Congress to give the Security and Exchange Commission (SEC) more authority to oversee the crypto market, echoing previous calls by the IRS for the same. Gensler also stated that cryptocurrency feels like the “wild west” right now, adding, that “regulations are coming” singling out “Defi and stablecoins,” as Bitboy Crypto previously reported.
It should be noted the SEC already has significant authority over digital assets. This reaises the question, what more legal authority does the SEC want? The answer to that question seems to be answered in May earlier this year when Gensler pleaded with Congress to give the SEC oversight over monitoring crypto exchanges. He additionally said platforms that pool digital assets could be similar to mutual funds, meaning the SEC could regulate them. If that were to happen Defi staking and automated market-making used by decentralized exchanges may be dead in the water.
SEC Argues Lending Is A Security, Doesn’t Understand Crypto
The SEC has already gone after Coinbase this week for offering interest on stablecoins, and requests all their customers’ information who signed up for its forthcoming “Lend” program. The SEC sent a Wells notice — which essentially means the agency aims to bring a lawsuit against Coinbase if it launches its “lend” product. The overall picture here is that the SEC is saying “lending” is a security. America’s current securities law classes lending as a security with the exception of bank and some other institutions.
Ironically the law is meant to protect investors from unauthorized “investment contracts,” in a common enterprise but banks are exempt and can offer customers lending. The SEC argues that Coinbase’s “lend” program is an investment contract that requires the effort of others who have an expectation of profit or yielded return. Brian Armstrong the CEO of Coinbase, argues that their lending program isn’t a security stating that Lend does not constitute an investment contract. Coinbase expresses that its customers are lending USDC in their accounts with a pre-existing relationship with Coinbase.
1/ Some really sketchy behavior coming out of the SEC recently.
— Brian Armstrong (@brian_armstrong) September 8, 2021
In other words, the SEC doesn’t want crypto to be able to offer lending without its permission and might not want it at all as it would kill the banking industry with such high yield returns offered.
Of course, this could all become a game of cat and mouse between the SEC, other agencies, and developers who code such technology. In fact, calls for regulation may fuel privacy-oriented developers or Cypherpunks against government oversight, and overregulation. This could also result in some financial technology moving underground like lending to truly decentralized obscure hosting like an onion address on the darknet. Which would only end up making the crypto industry more dangerous opening investors to more scammers than Uniswap and Binance Smart Chain minted tokens combined.
Besides scammers U.S. regulators would completely chase innovation to other countries, slamming the door on start-up businesses literally overnight.
At that same Aspen meeting last month, Gensler stated that the SEC was looking at at least seven different industries within crypto, including — initial coin offerings, trading venues, lending platforms, DeFi, stablecoins, custody, and exchange-traded funds. Gensler has signaled strongly that stricter regulation is coming for the $1.6 trillion digital-asset market. So, Gensler and the dinosaurs of the traditional financial industry and their minions seem to have their regulatory sights set on the entirety of the crypto space. To that end, the SEC also recently announced that it was investigating Uniswap Labs, the parent company behind the popular DEX app Uniswap.
Bitcoin is currently trading at [FIAT: $45,373.81] DOWN -1.1% in the last 24 hours according to Coingecko at the time of this report.