Sherrod brown, the chair of U.S. Senate Banking Committee plans to move stablecoins forward by merging it with marijuana legislation and clawing compensation back from banks. The U.S. has been slow to adopt stablecoin regulations, particularly with elections in 2024. The UK has also taken steps to regulate cryptocurrency and stablecoins, with plans to create a regulatory framework for all of these activities by the middle of 2024. Stablecoins continue to be used for cross-border payments despite the uncertainty surrounding their regulation. Stablecoins are also set to gain a boost from the new competitions that players such as Ripple will be launching.
Sen. Brown’s novel approach to passing stablecoin legislation
Sherrod B. Brown, the chairperson of United States Senate Banking Committee revealed his plans to package stablecoin legislation with other measures. This includes allowing financial institutions to process transactions for marijuana companies and clawbacks on executives of failed financial institutions. The proposal addresses some regulatory concerns that are currently surrounding stablecoins, which have been stalled by Congress in spite of support from the industry.
Legislative proposals to regulate stablecoins in the Senate and House of Representatives are struggling to progress. In the Senate, a bipartisan effort led by Republican Cynthia Lummis, and Democrat Kirsten Gilibrand, has been in progress. The House, however, saw its Clarity for Payment Stablecoins Act, which passed through a committee in July 2023 but has not made much progress since.
This legislative push comes at a time when Senator Brown, known for his cautious stance on digital assets, is preparing to fight in Ohio against Republican nominee Bernie Moreno. The push for legislation comes as Senator Brown prepares to fight for reelection in Ohio, against Republican candidate Bernie Moreno, despite his conservative stance towards digital assets. In the meantime, Patrick McHenry announced he would not run for reelection as the chair of the House Financial Services Committee. This is another change in leadership which could affect the future of cryptocurrency regulation.
UK also prepares crypto regulation legislation
Senator Brown’s mission to regulate stablecoins isn’t his alone. According to UK Economic Secretary Bim Adolami, the UK is planning to introduce comprehensive legislation to regulate stablecoins as well as other crypto-activities like staking before mid-2024. Afolami, speaking at the Innovate Finance Global Summit reiterated the commitment of the UK government to establish a regulatory structure that would bring, for the very first time, crypto assets like exchanges, custodial service providers, and staking under regulation.
The UK has passed the Financial Markets Bill in 2023 which paved the way for stablecoins, and other cryptocurrency activities to be treated as regulated financial operations in the UK. Since early last year, both the Financial Conduct Authority and Bank of England are actively consulting about the details of a regulatory framework for stablecoins. Bank of England plans to oversee major stablecoin suppliers that may have an impact on the financial system while FCA prepares to regulate the crypto market.
Afolami, the UK’s Conservative Party led government, announced in February that it was aiming to complete secondary stablecoin laws in the next six months. This announcement reinforced the Conservative Party government’s desire to make the UK a cryptocurrency hub. There is an urgency for these regulations to be implemented much faster than initially thought, as a possible election could see the Conservative Party replace. Labour Party may be more focused on other priorities and put the Conservative Party’s agenda for crypto regulation to the side.
Why is it important to use stablecoins?
Stablecoins, a form of cryptocurrency that is designed to reduce the volatility associated with digital currency like Bitcoin. Stablecoins do this by tying their value to more stable assets such as fiat currency, commodities or financial instruments. They are more stable and suitable for daily transactions. This makes them a better option for consumers and merchants who may be wary about the Today’s viral level= lavender swings in Bitcoin and other cryptocurrencies.
Stablecoins are important because they can act as reliable exchange mediums in the digital world. Stablecoins, unlike volatile cryptocurrencies offer predictability, and they preserve the purchasing power. This is important for routine transactions, as well for investors who want to own digital assets, without risking a drastic change in value. Stability helps to bridge the gap between fiat currency and cryptocurrency, making digital transaction more appealing and practical.
The growing importance and popularity of stablecoins has attracted the attention of regulators. In response to concerns about the impact of stablecoins on the broader system, organizations like the International Organization of Securities Commissions have proposed that the most important ones be regulated by the Financial Market Infrastructure. Political and regulatory authorities are actively advocating measures such as regular audits, bank-like regulation for stablecoins issuers, to ensure safety, reliability, and stability.
Stablecoins push for mainstream adoption
Bernstein’s recent report shows that the stablecoin industry has experienced a massive increase in its adoption. This is especially true for cross-border payments. Stablecoins have also been increasingly integrated in the payment systems for companies from various industries.
In the report, it was specifically noted that stablecoins are widely used in the crypto trading eco-system and as a means of cross-border payment. In the first quarter 2024, annualized transactions valued at $6.8 trillion. The value of transactions in the first quarter of 2024 was $6.8 trillion. This is roughly equal to the transaction peak recorded in 2022.
Stablecoins are being adopted by some very well-known payment companies like PayPal, Visa and consumer fintech platforms such as Grab in Singapore or Mercado Libre Latin America.
There are some challenges with the scaling of the blockchain, which is essential to handle the high volume of transactions required by stablecoin adoption. Solana has been a leader in stablecoin transfers, and is now the dominant blockchain. It even surpasses Ethereum this time around. Solana, despite its popularity, is facing major scaling issues. It currently processes 700 transactions per seconds (TPS), which are far less than the 10,000+ that Visa and other traditional payment networks require.
Although Solana started pilot programs, with players such as Visa and Shopify it’s still not clear if Solana will be able to manage the rapid growth required for widespread payments between consumers and businesses.
Stablecoin Ecosystem: Healthy competition
Paolo Ardoino, CEO of Tether, recently spoke about the launch of Ripple’s stablecoin as well as benefits of the competition within the stablecoin industry during the Paris Blockchain Week. Ardoino is of the opinion that having a stablecoin market with more than $130 Billion in capitalization, it’s important to have a competition. He said that the competition validates both the industry and the stablecoins’ position in the regulatory discussion.
Ardoino views Ripple’s move as an extremely positive development. It suggests that there’s plenty of room on the market for new players, particularly when you consider the massive money supply increase by the U.S. Government. With a total market capitalization of $108 billion dollars, Tether (USDT) still dominates the cryptocurrency market. USD Coin (USDC), with its $32 billion dollar market cap, is second.
He pointed out also that inflation in many countries, including Argentina, Turkey Venezuela, Vietnam and Brazil, has led to a devaluation of currencies and a rapid adoption of stablecoins such as USDT and USDC. This has led to a demand for stablecoins as an alternative to national currencies that are unstable. Ardoino believes the digital nature and stability of stablecoins can provide financial inclusion for more than 2 billion people who are not banked.
Ardoino also discussed Tether’s financial status, noting that USDT has a 106% overcollateralization. He highlighted Tether’s strategy to maintain 100% of reserves in U.S. Treasury Bills, as the company holds an estimated $90 Billion in Treasury Bonds.
