DFC

"In May 2022, there was a run on Terra, an algorithmic stablecoin whose price broke its peg of $1 and crashed to zero. The run spilled over to the entire stablecoin sector, with stablecoins backed by riskier assets heavily affected and investors fleeing to less risky U.S.-based stablecoins regulated by U.S. authorities. As the digital asset ecosystem continues to grow, its potential to affect traditional financial markets and a broader section of households and firms could grow accordingly."

The Financial Stability Board (FSB) published its global regulatory framework for crypto-asset activities and markets, and "global stablecoin" arrangements, to promote the comprehensiveness and international consistency of regulatory and supervisory approaches. They build on the principles – ‘same activity, same risk, same regulation’; high-level and flexible; and technology neutral. The recommendations focus on addressing risks to financial stability and do not comprehensively cover all specific risk categories related to crypto-asset activities.

The US Federal Reserve Board (FRB) published additional information on its program to supervise novel activities in the banks it oversees. Novel activities include complex, technology-driven partnerships with non-banks to provide banking services to customers; and activities that involve crypto-assets and distributed ledger or "blockchain" technology. The Fed also provided additional information on the process for Fed-supervised state banks to follow before engaging in certain dollar token or stablecoin activity, including demonstrating to its Fed supervisors that it has appropriate safeguards to conduct the activity safely and soundly.

Lars Ulbricht compared the smart contracts of the PayPal PYUSD and Circle USDC stablecoins. He found that they differ in terms of the degree and method of centralization and intervention. PYUSD's contract exhibits a more traditional approach with more control over the contract and the option to wipe accounts, while USDC enables a decentralization of minting whilst maintaining crucial control mechanisms. It is important to note that how these functionalities will be used will depend on the governance models employed by each organization. So while PYUSD seems to be just a little bit more centralized, the theoretical abuse possibilities don’t differ too much from USDC.

Edelcoin is a stablecoin backed by a basket of precious and base metals which are used across various industries, including medicine, medical research, electronics, aerospace, military, energy, telecommunications, and navigation. These metals include Copper Isotope, Nickel Wire (NP1, NP2), and Caesium 133, each with unique applications and supply circumstances.

Binance will "gradually" end support for its BUSD stablecoin, removing it from spot and margin trading pairs. Users have been asked to convert their BUSD into other assets by February next year. Binance is also delisting BUSD as a loanable asset on September 6 and will cease withdrawals of Binance-peg BUSD tokens via BNB Chain, Avalanche, Polygon and Tron on September 7. A decision to end support for BUSD has been expected since BUSD issuer Paxos was ordered to stop minting the coin in February.

USDT has a peg stability problem compared to other stablecoins. Its redemption fee and minimum means it’s often rational for USDT holders to sell the token on the market rather than redeem it for USD with Tether. As liquidity has dwindled, the market is no longer able to absorb significant USDT selling. Tether charges a 0.1% fee for fiat withdrawals over $1,000, meaning that USDT is redeemable at $0.99, with the minimum fiat withdrawal or deposit set at $100,000. Another catch is that users have to pay a non-refundable amount of $150 for “verification,” which, according to Tether, “is intended to ensure that only those who are serious about establishing an account apply.”

Circle has "no remorse" over its decision to hold $3.3B at SVB. It was "as diversified as possible" and blames banking for its woes, which is "extremely difficult" for crypto firms. However, Circle's stablecoin competitor, Paxos, didn't have single-bank exposure. As the screenshot below shows, $185.5 million worth of deposits held to back Paxos's USDP stablecoin were spread over thousands of banks using deposit placement networks like IntraFi, and were thus insured by the government. For the remainder, Paxos obtained $72 million worth private insurance. Only $10.9 million in deposits were effectively unprotected, a small 1.3% sliver of USDP's total assets. Rather than keeping 8% of its assets lodged at a second tier bank without insurance, why didn't Circle follow Paxos's risk reduction strategy?

Fortune magazine published a behind-the-scenes account of Circle's Silicon Valley Bank (SVB) trials and tribultations. Circle's management "devised a plan A, B, and C. The first failed when Circle’s attempted wire to get out its deposits didn’t go through. [They] remained optimistic that the government would guarantee its deposits—plan B. In case that didn’t work out, the executives spent the weekend negotiating deals with companies who would buy Circle’s SVB holdings for $0.85 on the dollar, which, along with Circle’s own balance sheet, would be enough to restore USDC’s reserves."

PayPal's PYUSD on-chain dollar-denominated stablecoin 100% backed by U.S. dollar deposits, short-term U.S Treasuries, and similar cash equivalents, is available on Venmo to select users and will be rolling out fully in the coming weeks. Transfers between PayPal and Venmo users are fast and free, connecting two wallets with millions of users each. Individuals using compatible external wallets, and merchants accepting payments in PYUSD, will also be able to receive transfers from Venmo users. Blockchain network fees apply. Also, PYUSD has been greenlisted by the New York State Department of Financial Services, making it easier for virtual currency entities licensed in New York to support PYUSD.

JP Morgan is participating in the Regulated Liability Network (RLN). Earlier in September 2023, the UK arm of the RLN shared the findings of its latest work without mentioning the participants. The network aims to bring together banks and central banks to support different types of digital currency on the same network. That includes central bank digital currency (CBDC), deposit tokens and regulated stablecoins. In July the US RLN published a report involving several other U.S. banks, the New York Federal Reserve’s innovation arm and Mastercard. The premise that underpins the RLN is interoperability so that banks don’t need to use the same type of blockchain to transfer tokens between them.

"Coinbase isn't a bank, nor is it an SEC-approved money market mutual fund. And unlike Wise and PayPal, Coinbase's interest payments aren't powered under the hood by a bank. So how does Coinbase pull this off? In short, Coinbase seems to have seized on a third-path to paying interest. It cleverly describes the ability to receive interest as a "loyalty program", which puts it in the same bucket as Starbucks Rewards or Delta's air miles program. The program itself is dubbed USDC Rewards, and in its FAQ, customers are consistently described as "earning rewards" rather than "earning interest." "

"I think it is entirely consistent with the evidence to remain sceptical about the impact of cryptocurrency on the wider economy, while at the same time being excited about tokenisation and the transition to that web3 world of decentralised finance protocols exchanging digital assets backed by regulated institutions with digital currencies, similarly backed by regulated institutions. In this respect, PayPal’s move will I am sure be seen in hindsight as a cusp moment and a vote of confidence in the web3 world. "

Japanese law does not have a unified regime applicable to tokens issued or minted on a blockchain. The legal status of tokens under Japanese law is determined in accordance with their functions and uses. For example, cryptocurrency and utility tokens such as BTC and ETH are regulated as cryptoassets under the Payment Services Act (PSA). A business operator that engages in the business of buying, selling or exchanging cryptocurrencies or intermediating these activities, or managing cryptocurrencies for the benefit of others, is required to register as a cryptoasset exchange service provider (CAESP).

Japan's revised Payments Services Act was passed by the Diet and promulgated in June 2022, with the aim of introducing new regulations on stable coins. This amendment has entered into force on June 1, 2023. Under the new regulations stablecoins that can be redeemable in fiat currencies will be regulated as electronic payment instruments (EPIs). Those who are permitted to issue EPIs directly to Japanese residents are limited to banks, funds transfer services providers, trust banks or trust companies that are licensed in Japan. Only licensed EPI business providers (EPIBPs) can sell or purchases EPIs, act as an intermediary for EPI issuance, sales and purchases, or provide EPI custody services. EPIBPs are subject to AML/CFT regulations, including a travel rule. In other words, EPIBPs are required to provide the customer's identification information when transferring EPIs to any other EPIBPs.

NY Fed staff investigated similarities and differences between stablecoins and money market funds (MMFs), comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the MMF runs of 2008 and 2020. They found that, similarly to MMF investors, stablecoin investors engage in flight to safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in MMFs, run risk has historically materialized only in prime funds, with stablecoins, runs occurred in different stablecoin types across the 2022 and 2023 episodes. The analysis also shows that, similarly to intrafamily flows in MMFs, stablecoin flows tend to be within blockchains. A discrete “break-the-buck” threshold of $0.99 was identified, below which redemptions accelerate.

Dubai’s Virtual Asset Regulatory Authority (VARA) and Dubai International Financial Center (DIFC) published updates to their crypto regulations. VARA updated its virtual asset rulebook and added new fiat-referenced virtual asset (FRVA) (or fiat-referenced stablecoin) regulations. VARAs exclude stablecoins pegged to the United Arab Emirates (UAE) dirham, which will remain under Central bank of the UAE regulation, and crypto-assets that reference central bank equity claims, central bank digital currencies (CBDCs), or tokenized bank deposits for interbank settlement purposes. [Read more at VARA] DIFC proposed a new securities digital asset law in a new consultation paper.

The Canadian Securities Administrators (CSA) indicated that it may allow, subject to terms and conditions, the continued trading of stablecoins or "value-referenced crypto-assets” (VRCAs). The interim framework sets certain standards to help ensure that investors receive the information they need about the assets they are purchasing, including the risks associated with them. Such information includes the composition and adequacy of reserves and their governance.

The Committee on Payments and Market Infrastructures (CPMI) published a report on considerations and challenges regarding the use of stablecoin arrangements in cross-border payments. The paper acknowledges it’s possible that stablecoins might cut costs, speed up payments, encourage competition and improve transparency, no stablecoin arrangements yet exist that are deemed to be properly designed and regulated and fully compliant with all relevant regulatory requirements. Further, even if such stablecoin arrangements did exist and could help to address specific cross-border payment frictions, they might not necessarily positively impact cross-border payments as the drawbacks could outweigh any potential benefits.

The U.K. HM Treasury published an update on its legislative approach for bringing fiat-backed stablecoins into the U.K. regulatory perimeter for financial services. It will inform development of the Financial Conduct Authority and Bank of England’s approaches for regulating stablecoin issuers and custodians, and systemic digital settlement asset payments systems and service providers respectively.