The regulation, according to the Treasury, is to prevent risks to users and criminal acts.
Regulators want to regulate the issuance, use as a means of payment, and the trading of stablecoins.
Bitcoin (BTC), cryptocurrencies and tokens have long been under the scrutiny of regulators around the world. Stablecoins such as Tether (USDT) are no exception, as they are part of a parallel economy that sometimes escapes the clutches of those who want to have everything under their control.
These stable currencies maintain parity in their price with that of an underlying asset, which is generally the US dollar. Besides Tether, others that have great adoption are USD Coin (USDC), Gemini Dollar (GUSD), True USD (TUSD), Terra US (UST) and DAI.
That the crypto assets mentioned follow the price of the currency issued by the US Federal Reserve (Fed) as a reference, does not cause too much sympathy in the northern country. The national Treasury has already triggered the alarms and made its regulatory intentions on stablecoins explicit. Days ago, this body issued an extensive document in which it gives recommendations on the matter.
First of all, they manifest your support for the Financial Action Task Force (FATF). Not only that, but the document indicates that the US Treasury “will continue to lead the efforts” of this group in order to “encourage countries to implement international anti-money laundering standards.” In addition, they announce that they will seek “additional resources to support the supervision of national regulations.”
The FATF is an intergovernmental institution that was created in 1989. Its objective is to develop policies to combat money laundering and terrorist financing. Periodically, this body issues recommendations on various matters that, although they do not have the force of law, They are usually complied with by member countries, to avoid sanctions.
Among these recommendations are numerous references to bitcoin and digital currencies. For example, in September 2020, CriptoNoticias reviewed a FATF document stating that various actions that are routinely carried out by cryptocurrency operators are now considered suspicious. Among them: dividing a large transaction into smaller amounts; make a change from cryptocurrency to fiat money with a potential loss; or “converting a large quantity of one type of cryptoasset into other types of cryptoassets without a logical commercial explanation.”
Stablecoin addresses associated with individual identities
In line with the spirit of the FATF, the US Treasury in the document referenced here recommends “that Congress act promptly to enact legislation that ensures stablecoins are subject to a federal framework on a consistent and consistent basis. integral”.
Specifically, they indicate that “the legislation should provide for supervision on a consolidated basis, prudential standards and, potentially, that appropriate components of the federal safety net can have access.”
They do not give details on that last point, but – if you are aware of the most recent news on the subject – it can be inferred that it refers to placing greater emphasis on the identification of stablecoin users through the mandatory nature of KYC policies (acronym in English for “know your customer”).
USDT issuing company Tether does not want its business threatened and has indicated that they will privilege compliance with regulations, over the financial privacy of users.
Days ago, the company announced that they will incorporate tools to comply with the “travel rule.” This regulation establishes that when assets in an amount greater than USD 1,000 are sent between custody platforms (centralized exchanges, for example), the issuer’s data must ‘travel’ along with the money and be shared to the receiving platform.
A financial license will be required to be able to issue stable tokens
The US Treasury wants to regulate, not only the use of stablecoins, but also their issuance. The document reviewed in this text indicates that “the legislation should limit the issuance of stable currencies and the related activities of redemption and maintenance of reserve assets to entities that are insured depository institutions.”
What does this mean? That only financial entities, which are authorized to safeguard money and other assets, may issue stable cryptocurrencies. The Treasury seems to be forgetting that there are stablecoins not collateralized by fiat money and that they are issued in a decentralized way, as is the case of DAI.
With DAI, from Maker DAO, anyone who deposits certain crypto assets in a certain smart contract will be able to see them converted into an Ethereum token that maintains its price parity with the US dollar.
Too there are algorithmic stablecoins, which do not have a collateral asset. Its price maintains parity with another asset (for example, the dollar) by increasing or reducing its circulating supply. These include Terra US (UST).
Goodbye to the free stablecoin market: regulators on the prowl
The Treasury not only wants to regulate users and issuers, but also want to meddle in the market. “Legislation should ensure that supervisors have the authority to implement standards that promote interoperability between stablecoins.”
If this is done, it will not be “the invisible hand of the market” that decides which stablecoin is better, based on free competition. On the contrary, trading platforms, they should indiscriminately accept various stablecoins by legal mandate, in order to guarantee the “interoperability” desired by the Treasury.
Everything is to “protect the user”
Of course, the government entity presents seemingly altruistic arguments to justify their meddling in the stablecoin industry. “Protect the user” is, as usual, the Trojan horse that regulators use to get their hands on the market.
The Treasury, in the document reported here, gives a list of risks related to stablecoins, which are “of special interest to agencies, and especially to the Securities and Exchange Commission (SEC) and the Futures Trading Commission. of Commodities (CFTC) ».
Among these so-called “risks” mention things that are not themselves something that harms an individual. For example, they include in the list the fact that cryptocurrency trading platforms “allow clients to convert stablecoins into national currency to facilitate arbitrage.”
They also refer to possible criminal acts that could well be carried out with fiat money. For example, stablecoins are used for “manipulative commercial activities”, or to “launder money and finance terrorism.” In fact, a study by the Chainalysis firm, which was reported by this medium in February 2021, shows that less than 10% of these crimes are carried out with cryptocurrencies.
Some included risks are related to the cryptocurrency exchanges non-compliance with regulatory standards. It is worth asking here: what do stablecoins have to do with it? Shouldn’t the activity of the exchange houses be controlled more, if that is what is desired?
And, finally, in relation to the above, the Treasury sees the possibility of dependence between a stablecoin and a certain exchange as dangerous. This could lead to “the blending of funds with those of the client.” As has already been said, the US government wants only entities with licenses to offer financial products, may be the issuers of stablecoins.
International effort to mitigate the ‘risks’ of Tether and stablecoins
By way of conclusion, the Treasury anticipates that it will work jointly with other state agencies to prevent any risks associated with stablecoins. For this, in addition to stimulating the creation of new regulations, compliance with the existing ones will be emphasized:
While the regulations are generally sufficient to cover stablecoin managers and other participants in stablecoin deals, the Treasury will seek additional resources, which could allow the Financial Crime Control Network (FinCEN), the Tax Service (IRS) and federal regulators increase oversight of these regulations.
United States Department of the Treasury.
And, because blockchains do not recognize borders, the US Treasury reiterates that “to encourage the international implementation of anti-money laundering and anti-terrorist financing standards, it will continue to interact with the FATF to encourage countries to implement in ways effective standards for virtual assets.