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US Treasury Department Says Stablecoins Could Have Positive Impact on Payments – But Potential Risks to Financial System Must Be Mitigated

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The US Treasury Department says that stablecoins, cryptographically secured digital assets pegged to the price of traditional assets like the US dollar, could have a positive impact on the payments industry.

In a new press release and report on one emerging sector of the digital economy, the Treasury says “stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options.”

But the agency is also laying out what it views as the potential risks inherent in stablecoins and calling on the need for responsible regulation.

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The report from the President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) outlines concerns about stablecoins and the digital asset space at large.

The regulators argue that stablecoins pose “illicit finance concerns and risks to financial integrity.” They say the sector presents risks involving compliance with anti-money laundering (AML) regulations and policies designed to counter the financing of terrorism (CFT).

“To prevent misuse of stablecoins and other digital assets by illicit actors, Treasury will continue leading efforts at the Financial Action Task Force (FATF) to encourage countries to implement international AML/CFT standards and pursue additional resources to support supervision of domestic AML/CFT regulations.”

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The report also notes that stablecoins could be at risk of runs if issuers stop honoring investor requests to redeem them, or if investors simply lose confidence in an issuer’s ability to honor redemption requests. Runs on stablecoin issuers could cause harm to the broader financial system, the regulators argue.

Additionally, the report makes the case that digital assets and decentralized finance (DeFi) present market integrity and investor protection risks, including front-running, insider trading, market manipulation and fraud.

More regulations and disclosures are recommended to combat these risks.

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“As markets for digital assets and DeFi grow, it is essential to address the significant investor and market risks that could threaten end users and other participants in stablecoin arrangements and secondary market activity.

This may be accomplished through promotion of investor and market protection measures, such as requiring clear and complete disclosures and protecting against fraud, manipulation, and other risks.”

The regulators also call on Congress to pass legislation to provide oversight for the stablecoin space.

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“To address prudential risks associated with the use of stablecoins as a means of payment, the agencies recommend that Congress act promptly to ensure that payment stablecoins are subject to appropriate federal prudential oversight on a consistent and comprehensive basis.”

The stablecoin market didn’t appear to be impacted at all price-wise by the report, which you can read a full version of here.

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Stablecoins

US Senate Demands Answers From Stablecoin Issuers, Expresses ‘Concerns’

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Stablecoins are in for another battering at the hands of the United States policymakers – with the Senate now getting in on the act: a committee chief has expressed “significant concerns” about the “consistency” of the terminology used to audit them.

The Democrat Senator Sherrod Brown, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, sent a letter to the USD coin (USDC) mastermind Circle, with similar letters also sent to CoinbaseGeminiPaxosTrustToken (PAX), Binance.US and Centre.

The letters made a number of requests of the entities. In the case of the letter to Circle, it included the following:

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“Please describe the basic purchase, exchange or minting process[es] by which customers can acquire USDC for USD. In your answer, explain any relevant limitations or qualifications to engaging in and completing that process.”

A similar letter, this time asking the company behind tether (USDT), Tether Holdings Limited, for answers, was also issued.

The Senator asked the firms to produce written answers by December 3.

Brown’s letter made repeated references to a November Report on Stablecoins from the President’s Working Group, which some in the American crypto community last month dismissed as an example of “fear-mongering.”

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But Brown warned the firms that their customers might not understand how stablecoins work – or the risks involved with using them.

In the letter to Circle, he explained:

“I have significant concerns with the non-standardized terms applicable to [the] redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms.”

The IT writer Kyle Gibson opined on Twitter that the Senate was seeking to ask questions “about Tether’s reserves that every exchange that has ever listed USDT should have asked,” as Tether “doesn’t produce audits.”

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The Circle CEO Jeremy Allaire responded publicly by saying “thank you” to Brown and writing that he was “looking forward” to “working with” Brown to “ensure consumers are appropriately protected.”

Brown further wrote that “complex terms and conditions” were applicable to “digital assets and stablecoins,” which “can make it difficult for investors and consumers to fully understand the details of how those assets function and their potential risks.”

He added that he was concerned that buying stablecoins from crypto exchanges “may not provide customers with the same rights and entitlements as a direct purchase from an issuer,” adding that customers “may have different rights based on the amount of stablecoins owned or transacted.”

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US Treasury Releases it’s Report on Stablecoin Risks, Here’s Everything You Should Know

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The US Treasury Department finally released its much-awaited stablecoin risk report on November 1st. The President’s Working Group (PWG) released a report that make note of the risks associated with the use of stablecoins in the financial market. The major stablecoin risks highlighted in the report revolve around the reserves and issuance. The official report demanded Congress formulate new laws around the stablecoin issuance.

The treasury officials also conducted a press briefing on the new stablecoin risk report where they described  stablecoins as “a complex multifaceted product with a complex multifaceted set of risks.” There has been a lot of discussions about the regulations around stablecoins especially after continuous friction between the existing leader Tether and law enforcement.

“To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level,” the PWG wrote. “The legislation would prohibit other entities from issuing payment stablecoins.”

The PWG also admitted that the new rules and regulations would take time before coming into practice, thus advising regulators such as the Treasury, the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission to use existing authorities to fill the gap.

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Stablecoin Risk Report is Bullish, Says Crypto Proponents

The STABLE Act proposed at the start of the year had got many crypto proponents riled up as it talked about giving stablecoin issuance power to existing banks. However, the latest report seems to be much thorough and complete. The new report calls for stablecoin issuers to become “insured depository institutions”, on a par with banks that offer saving accounts.

The PWG seems to try to force Congress to choose between handing over regulatory power to bureaucrats or risking the unchecked FSOC stamping out crypto innovation. Another user wrote that the report was better than expected thus he is longing the USDT as a joke.

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Stable Coins to Carry Forward the Legacy of Cardano? Will This Impact ADA Price?

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Stable coins have been gaining steady popularity in the crypto space. As traders are preferring these over FIAT to hold their extracted gains from the digital assets. Cardano has been at an appreciable pace in the adoption of the growing industry. Likewise, stable coins from the house of the 5th largest crypto are increasing at a steady pace. Consecutively, Ardana raises $10 million in funding.

AgeUSD

AgeUSD is the first stable coin on Cardano, which was launched by EMURGO. The stable coin is a new algorithmic stable coin protocol, that is developed on the Ergo blockchain. In alliance with IOG, EMURGO, and Ergo foundation.

The protocol does not rely on Collateralized Debt Positions, as these are vulnerable to volatility and blockchain overloading. The platform aims at automation to a greater extent, with an attempt to create a higher-security alternative to prevailing trends in the space.

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Djed

Djed is a stable coin focussing on decentralized finance for the Cardano network, developed by IOG. The issuing authority of which is with Coti. Which is Cardano’s payment gateway. The stable coin will be built on an algorithmic design using smart contracts. To ensure price stability, while providing a tool for De-Fi transactions. 

The design of the stable coin is such that, it can be used for paying transaction fees on the Cardano network. As it avoids the volatile and sky-high gas fees. The protocol will operate by maintaining a reserve of base coins while minting and burning other assets. 

Ardana

Ardana is a decentralized stable coin ecosystem, which aims at bringing the necessary DeFi primitives. That is required to bootstrap and maintain any economy to Cardano. The protocol features full decentralization, which is unbiased, backing collateral, and pegged to the USD. It allows users to borrow stable coins against locked collateral. And a secure store of value, preserving value even in volatile markets.

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Ardana claims to be the leading stable coin and stable swap DEX on Cardano. The platform plans to hold a public sale of another token DANA. The proposal for the sale is with 35.625 million out of 125 million tokens up for asking for $0.30 to $0.60 each. Ardana received funding worth $10 million in seed capital from Three Arrows Capital and Ascensive Assets.

Collectively stable coins from Cardano’s network are turning into an ideal choice for buyers, over those built on Ethereum. Owing to lower transaction charges on Cardano. The stable coin space holds good potential for traders in the crypto community. We can expect, more such assets coming out from the house of Cardano.

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