There is a new trend in the blockchain technology market: a special type of cryptocurrency called stablecoins is becoming fashionable. The creators of these assets guarantee their complete stability. Stablecoins are digital assets that minimize fluctuations in their price. Several methods proposed to achieve this result. The simplest is to link the value of a cryptocurrency to reliable instruments such as the US dollar.
One of the main obstacles to using cryptocurrencies is their insane volatility, and stablecoins are designed to solve. It is one thing to speculate in cryptocurrencies, it is quite another to conduct business in them. There are obviously few who want to settle or even have short-term liabilities in an asset, the value of which can rise or fall by tens of percent in a matter of hours.
Now new development teams are vying with each other to offer the market the peace of mind that has been lacking in recent years.
With the growing discussion of these assets, in particular with global tech companies that are considering issuing their own stablecoin (such as Facebook’s Libra), many countries are considering different approaches to regulating cryptoassets in the EU, US and other jurisdictions.
What does it mean?
The International Organization of Securities Commissions (IOSCO) has published a report on global stablecoin initiatives highlighting the risks and related regulations needed to address the potential risks. The report used an example of a study on a stablecoin proposed for release by a private company.
From a financial regulatory perspective in the EU and the US, if users can make payments using such a cryptocurrency, it is likely that “frontend” regulations will be required. This is due to the fact that such activity can regarded as tantamount to providing:
– banking services;
– operations of payment systems;
– other types of financial infrastructure services.
The potential anonymity of transactions that use a stablecoin, as with any other cryptoasset, creates the risk of financial crime.
Unified standard for regulation of stablecoins
The world’s leading economies need to carefully design their legal system and regulatory requirements for stable cryptocurrencies. This is to prevent stablecoins from wreaking havoc on the international financial system. Stablecoins must meet the same requirements that followed by other organizations that carry similar risks, regardless of the technology used.
For stable cryptocurrencies, the rules of the traditional financial industry must be applied. It is about the requirements for payments and verification of the identity of customers. This will allow at least partially eliminate the risks. However, control over stablecoins used to make international payments complicated by differences in financial regulations from different countries. Experts believe that states need to show flexibility and develop a unified standard for regulating digital currencies so that their issuers cannot “move” from one jurisdiction to another. If necessary, the competent authorities should concretize the regulation and eliminate possible gaps in the domestic legal system in order to effectively minimize the risks posed by international stablecoins.