Stablecoin Regulation and a New Financial Paradigm

Earlier this week, the President's Working Group on Financial Markets (PWG) published a report on the benefits, risks and legislative recommendations for stable value coins, also known as stablecoins.

Stablecoins are a "class of cryptocurrencies that attempt to offer price stability and are backed by a reserve asset." The leading stablecoins are pegged to a currency such as the US dollar. For example, one "Tether" stablecoin will always be worth $1.

Many investors use stablecoins to transfer value between digital assets much more quickly and more securely than using traditional finance tools such as ACH. They are also sometimes used as a stable store of value when digital assets are locked into smart contracts.

Compliance, Not Prohibition

Usually in emerging technologies, regulation could grind its innovation to a halt. This could be playing out right now in other aspects of the crypto industry, thanks to the upcoming infrastructure bill.  But in this case, it appears the recommendations for stablecoin compliance will encourage the adoption of stablecoins among larger institutions.

This report from the PWG is a clear sign that major banking institutions will be using stablecoins, and with official denials that were will be a ban on bitcoin - these assets are here to stay.

However, there is a troubling aspect here. "Require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities." We could see a system where the government could effectively turn off a citizen's ability to access any kind of transaction the government deems restricted. This is likely to be a major political battleground of debate as stablecoins become more prominent.

If the US becomes a leader in blockchain development and Bitcoin adoption, and if stablecoins are regulated in a way that protect Americans' rights, we can very well see a new financial paradigm that actually improves the current system, rather than destroy it.

Imagine banks using US dollar stablecoins to offer checking accounts to anyone in the world with a smart phone and an internet connection. Now imagine banks offering exchange services to Bitcoin as a savings account. One asset to use as currency, another as digital property that appreciates faster than general inflation. We can very well see US dollar stablecoins maintain its status as the world reserve currency and Bitcoin as the world reserve asset. We'll talk about this concept in an upcoming article.

This article, along with all content and opinions from BTC Examiner, is for educational purposes only and is not financial advice. Please reach out to your independent financial advisor before making any investment.