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From Central Bank Proposals to Wells Notices and Expanding Headcounts – Here is the Latest on Stablecoins

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Stablecoins are a hot topic right now in the world of digital assets.  Viewed by many as being a lynchpin within the sector, stablecoin offerings have expanded greatly in a short period of time as investors leverage their ability to provide a safe haven among pools of volatile assets.

In recent weeks however, we have seen various noteworthy developments involving regulatory proposals, enforcement actions, and shared intents on expansion.  The following are brief look at each.

Stablecoin Rulebook Proposal Put Forth by the Bank of Israel

Regulators in Israel are currently seeking public input on a proposal it has put forth on how to treat stablecoins.

“In view of recent years’ increasing interest in digital assets and the risks derived from them, as have materialized around the world in the recent period, the Bank of Israel established a committee headed by Deputy Governor Andrew Abir to examine the issue from several perspectives: prudential, regulatory, technological, monetary, and legal.”

In its shared communication, the Bank of Isreal concentrates on four main points which is believes are necessary to mitigate any potential risks associated with stablecoins.

  • Stablecoin issuers must maintain reserve assets covering 100% of liabilities
  • Stablecoin issuers must be licensed by the Capital Market Authority, or the Banking Supervision Department if deemed to have ‘systemic importance'
  • Oversight to stablecoins operating as a ‘controlled payment system' will be provided by the Bank of Israel
  • A coordinated approach towards stablecoin supervision must be established among regulating bodies

Overall, the proposal put forth by the Bank of Israel appears to align with expectations held by many surrounding the regulation of stablecoins.  As it stands, the proposal will remain live until March 15th, 2023 for public feedback.

Paxos Preparing for All Outcomes

While regulators in Israel look to developed a ‘rulebook' on stablecoins, their United States counterparts have instead opted to ‘regulate through enforcement'.  This was most recently on display when news broke that BUSD issuer, Paxos, announced it had received a Wells notice from the Securities and Exchange Commission – a document sharing the pending intent to sue for securities violations.

In the days following, we have now seen Paxos cut ties with Binance, and make it known that it would not ‘lay down and roll over'.  Rather, it shared that it “categorically disagrees” with the SECs assertions that BUSD is a security, and that it was “…prepared to vigorously litigate if necessary”.

Now, speculation has arisen that a settlement between Paxos and the SEC may be on the horizon, as Reuters reports internal emails have shown the pair are “…engaged in constructive discussions”.

As a result of the above developments, BUSD liquidity has begun to buckle under the pressure of increasing sell-orders.  The last word investors want to hear in the same sentence as stablecoins is ‘de-peg'.  Unfortunately, this is exactly what happened to BUSD early Feb. 22, as the stablecoin briefly dropped to $0.20 against rival DAI.  While brief, the de-peg was largely the result of a single sell order worth ~$650,000.

It should be noted that although Paxos has been forced to stop issuance of BUSD, the company will continue supporting the asset into 2024.

Circle to Expand Operations throughout 2023

Not all is woe in the stablecoin ecosystem.  As Paxos continues its battle, a few projects are well-positioned to capitalize on the resulting turmoil.  Once such company is Circle – issuer of USDC.

In a recent discussion with the WSJ, representatives from the Boston-based Circle stated that over the course of 2023, the company anticipates on expanding its headcount by up to 25%.  This is in stark contrast to the plethora of layoffs to have occurred within the digital asset sector over the past year, and potentially points to the beginnings of a market turnaround.

Notably, Circle CSO Dante Disparte recently clarified that the company had not received a Wells notice from the SEC.  This came in response to false rumours that began to spread across social media indicating otherwise – otherwise known as FUD.

Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology.