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Stablecoins Still Finding Footing Among Digital Assets – Regulations Weekly




Stablecoins have been, and will continue to be, an important cog in the digital asset sector.  As such, they have attracted the attention of both investors and regulators alike.  The following are a few developments from the past week, highlighting this intrigue.

FDIC Insurance

Lending services like BlockFi, Celsius, and Nexo are wildly popular.  There remains however a major knock against each of these companies – a lack of FDIC insurance.  This is a form of deposit insurance, which typically provides ample coverage/safe guards to customer accounts against the potential loss of funds.  As it stands, if any of these companies were to go under, there are no guarantees that clients would get their money back.

This above situation may soon be a thing of the past, as it is believed the FDIC is actively determining whether it can extend its services to include select stablecoins.  If this were to occur, eligibility would most likely be quite stringent.  For those that are deemed eligible, this would mean $250,000 USD worth of coverage per customer.

It is important to note that while the above listed companies may not yet boast FDIC accounts, they do promote alternative insurance safeguards.  Whether they alone suffice is a decision to be made by the end-user.

A Need to Comply

In a recent speech at the 23rd Geneva Conference on the World Economy, Head of the BIS Innovation Hub, Benoît Cœuré, touched on the risks associated with stablecoins.

“Think of global stablecoins, especially if issued by big techs. They are promoted as a way to provide faster and cheaper cross-border payments and deeper financial inclusion. And they do. But they also pose significant risks: they can create closed ecosystems or “walled gardens” that fragment the monetary system, by potentially taking large volumes of payments outside the system that has central banks at its centre.

Stablecoins may also pose risks for financial stability…stablecoin arrangements should observe international standards for payment, clearing and settlement systems to safeguard financial stability, if they perform a payment function and are found to be systemically important.

Walled gardens also have serious implications for competition. They augment the already significant market power of big techs. They also risk threatening consumer privacy and challenge existing regulatory practices.”

After stressing the need for compliance with existing international payment standards, Cœuré issued a warning,

“The history of private money initiatives is not a happy read. Whenever faced with the conflict of interest between making their money stable no matter what and making a profit, private issuers have always chosen profits.”

As an alternative to stablecoins, Cœuré appears to have faith in CBDCs, believing that they would offer much the same benefits of stablecoins while being a ‘safe and neutral means of payment and settlement’.

Settlement Upgrade

As one of the world’s largest money transmitters, MoneyGram has no doubt kept close watch of the digital asset sector.  With cryptocurrencies becoming an increasingly viable threat to its business, adaptation and evolution must occur.  To this end, MoneyGram has just announced a new partnership with the Stellar Development Foundation, which will allow for the company to support both USDC-based funding and payout options for its customers.

MoneyGram states, “For the first time, settlement with MoneyGram will occur in near-real-time using Circle’s USDC, the world’s fastest growing dollar digital currency. This enables an accelerated collection of funds, improving efficiency and reducing risk.”

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