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The U.S. Securities and Exchange Commission recently suggested that Stablecoins still hold the risks, no matter they maintain price stability. According to the reports, SEC can get the Authority over stablecoins very soon.
Stablecoins, as the name suggests, are stable digital assets that maintain their prices despite the highly volatile crypto market. The reason is that they are pegged to some other asset such as U.S. Dollar. So, in short, holding stablecoins is somewhat safer compared to other cryptocurrencies.
There are numerous stablecoins in the market, and most of them are pegged by USD. Note that stablecoins can be termed as a bridge between traditional finance and cryptocurrencies, and they can make it easier to migrate funds into the crypto exchanges.
The use and adoption of stablecoins are growing very rapidly. The primary reason behind their growth is the digitalization of payment methods. In other words, people usually prefer virtual modes of payments and the use of credit cards and other payment services require an intermediary for facilitating the transaction.
But, with the growth of cryptocurrencies, the requirement of a middleman has been diminished; particularly the stablecoins are more preferable for this purpose because U.S. Dollar pegs them.
Note that the payments that require an intermediary are often costly and restrictive, unlike stablecoins.
But, the growth of stablecoins has made the financial regulators worry about the entire system because growth can be partly because of the deficiencies in the payment system. There are many deficiencies in the payment system of the United States, due to which the regulators have started focusing more on stablecoins.
Stablecoins are currently not regulated by any means. But, the recent reports say that U.S. Treasury can soon publish a report where SEC will get the Authority over the stablecoins.
The upcoming policies will be applied to the centrally issued stablecoins, including USDT, Binance USD, Circle’s USD, Pax Dollar and TrueUSD. With the new rules, companies will be required to seek licences, and many stablecoin companies, including Circle, have supported the rules.
It is being said that the controversies around Diem stablecoin and Tether have also motivated the government to provide SEC with Authority.
The virtual payment is often very inefficient because the payments often occur in smaller closed networks. These inefficiencies had led to the growth of the stablecoins. They offer instant payment settlements and avoid delays in payment.
The use of Stablecoins is not limited to payment; instead, they hold enormous potential. They aren't regulated currently by any means, and hence, interference by the financial regulators can potentially reduce the risks associated with them. So, we need a regulatory framework that can offer consumer protection standards, standards regarding interoperability and the traditional prudential regulation standards.
The proper involvement of regulator authorities can indeed increase the adoption of stablecoins by the public.