The Stablecoins have been causing so much controversy lately. The crypto market continues as the longest running bullish market in history. In that regard, the stablecoins are the necessary medium in this market. As of late, recent rumors and statements from Washington are indicating a possible wave of new regulations coming on stablecoins way.

Stablecoins and CBDCs

Generally speaking, a stablecoin is a type of digital currency that has its value pegged to another asset. Most commonly, fiat pegged stablecoins are used in cryptocurrency trading. However, their superpower is to make quick, cheap and mostly secure transaction on the blockchain network as an alternative for banking services. Considering the impressive $126 billion market cap as of September, 2021, it is no wonder the politicians are worried about it.

To be fair, a valid argument against private sector stablecoins is that regarding the value, many of them are backed by debt. On the other hand, the decentralized nature of these companies can make it difficult to protect the users against possibly malicious policies. Subsequently, the governments are now seeking to issue Government backed stablecoins or CBDC.

The concern lies in the fact that CBDC can be an over powered apparatus for central banks that initially limits people from owning or having access to their wealth. The money is not in their hands, the money is on a digital network and the bank can block access if they wanted. In a dystopian situation, central banks can impose negative interest rates on bank accounts. Furthermore, it would be entirely possible for policymakers to impose regulations demanding only CBDC is the only legal medium to trade crypto.  Currently 83 countries are looking into CBDC release.

Possible Legal Approaches for Stablecoins

Only a few days ago, a press release from the US Treasury demanded quick actions against stablecoins expressing urgency. This is an indication of the severity of the situation.

Yesterday, a New York Times article discussed six different legal approaches that lawmakers can take against stablecoins. Here are the six approaches:

  • Regarding them as “systematically risky”. This would call for strict and harsh regulatory control can be quite destructive for them.
  • Recognizing them as “securities” and putting them under SEC supervision. (oh lawd)
  • Regulate them as Banks, putting them under the office of the Comptroller of Currency.
  • Engage in an active competition utilizing CBDC (or release the hounds in other terms).

The Bottom line

Sadly, it would be unrealistic to expect a phenomenon like stablecoin can continue this much unregulated. As it grows in market cap, the realization has hit the politicians that first, they want some if not all the profit and second, it is too liberating to be considered as safe for the political structure. Conversely, the fraudulent activities, lack of vision or in some cases just bad luck has given the crypto market a bad image for politicians to exploit. We must wait and see the regulatory outcome of stablecoin discussions. However, we could be sure that people are losing ground in these regulatory battles.

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