DFC

In February 2023, the Bank for International Settlements (BIS) Innovation Hub published its 2023 workplan that included Project Pyxtrial, aimed at building a stablecoins monitoring platform to ensure that the backing assets at least match the stablecoin issuance. That was the last I heard of it, but I just came across a request for quotation (RFQ) that was published in August 2023 for “visionary partners with outstanding experience and technological capabilities to join [the London Centre] to design and build prototypes of the data reporting pipeline. The RFQ was supposed to have closed in September 2023 and the work started in October.

Tether is launched Alloy (aUSD₮), a stablecoin pegged to the U.S. dollar overcollateralized by Tether Gold (XAU₮). Users can mint aUSD₮ by depositing XAU₮ as collateral through a process managed by Ethereum-compatible smart contracts. The aUSD₮ smart contract ensures transparency by keeping track of all collateral and minted tokens, using price oracles to constantly evaluate the Mint to Value (MTV) ratio.

Circle, the issuer of USDC and EURC, has become the first global stablecoin issuer to achieve compliance with the European Union's Markets in Crypto-Assets (MiCA) regulatory framework. This was enabled by the company’s attainment of an Electronic Money Institution (EMI) license (’agrément en qualité d'établissement de monnaie électronique) from the Autorité de Contrôle Prudentiel et de Résolution (ACPR). Of the top 10 stablecoins by market capitalization, only USDC is currently MiCA-compliant.

Paxos received full approval from the Monetary Authority of Singapore (MAS) for its Singapore entity to offer digital payment token services as a Major Payments Institution. The approval enables Paxos to issue stablecoins in line with MAS’s upcoming stablecoin framework. With the approval, Singapore becomes the third market, alongside the United States and United Arab Emirates, that Paxos and its related entities are authorized to issue stablecoins. Paxos has selected DBS Bank, Southeast Asia’s largest bank by assets, as its primary banking partner for cash management and custody of stablecoin reserves.

The EU is saying if you want to use stablecoins to buy crypto and do DeFi stuff, have at it. But if you want to use stablecoins to pay for goods and services like your coffee or your rent, then you need to use Euro (or other EU currency) stablecoins. The limits are really about monetary sovereignty.

The Digital Euro Association (DEA) published a paper that dissects the Markets in Crypto-Assets Regulation (MiCAR) and its transformative impact on the stablecoin landscape. It explores the diverse regulatory approaches to stablecoins across major jurisdictions and how MiCAR might serve as a model for global regulation. The paper discusses the potential market opportunities MiCAR offers for stablecoin issuers, including enhanced consumer trust, clearer regulatory guidance, and increased access to the European market. Also, it covers the significant challenges stablecoin issuers face under MiCAR, from stringent compliance requirements to operational and technological strains, and how these hurdles might impact smaller issuers and market dynamics.

The challenges faced by stablecoins are not entirely new – a deep dive into 334 historical currency pegs – when a country's central bank or government fixes the exchange rate for its currency – since 1800 reveals valuable lessons. Our analysis of this unique dataset covering more than 300 currency pegs since 1800 found that only 14% of currency pegs survived, with the median lifespan of failed or discontinued pegs ranging from 8-10 years. Among the remaining 51%, 30% were stopped, 6% joined the euro system and only 14% survived. Successful pegs were more often found in smaller, autocratic nations or oil-exporting economies with robust financial backing.

Elliptic published its 2024 typologies report on the nexus between crypto-assets and financial crime. This year’s report is designed to equip compliance teams and law enforcement with the practical insights needed to continue to detect new financial crime risks with success. The report includes case studies and insights on the convergence of AI and crypto-assets and how it is impacting criminal activity, the increasing use of stablecoins in financial crime typologies including pig butchering scams and sanctions evasion activity, and major law enforcement and regulatory actions with additional case studies.

The Financial Stability Board (FSB) published a report that explores potential factors driving the higher level of activities related to foreign currency-pegged stablecoins in emerging market and developing economies (EMDEs), the associated financial stability risks and regulatory challenges, and provides considerations to address them. EMDEs may be exposed to macro-financial risks arising from the use of foreign currency pegged global stablecoins, which can increase financial stability risks by destabilizing financial flows and straining fiscal resources.

The Swiss Financial Market Supervisory Authority (FINMA) published guidance on the issuance of stablecoins. It provides information on aspects of financial market law that arise in relation to stablecoin projects and the impact of such projects on the supervised institutions. The guidance also draws attention to the increased risks in the areas of money laundering, terrorist financing and the circumvention of sanctions. In particular, the identity of all persons holding the stablecoins must be adequately verified by the issuing institution or by appropriately supervised financial intermediaries. In other words anonymous transfers are prohibited.

The Centre for Economic Policy Research (CEPR) posted an article by several Bank for International Settlement (BIS) and European Central Bank (ECB) staffers that explores the reactions of stablecoin capitalization and money market fund assets under management (AUM) to crypto-asset market and US monetary policy shocks. Following a crypto shock, the money market fund AUMs barely budge whereas stablecoin capitalization drops significantly. After a monetary policy tightening, prime money market fund AUMs rise while stablecoin market capitalization substantially declines. As monetary policy tightens, crypto prices fall, the market turns bearish, and investors demand less stablecoins for speculative purposes. This brings into question the role of stablecoins as a crypto safe haven from either crypto or monetary policy and traditional financial market shocks.

This paper highlights the growth and importance of stablecoins since they were launched 10 years ago. We outline their impact on the cryptocurrency ecosystem as well as the financial system as a whole, while also summarising the main findings in the literature. Finally, we outline future research directions.

The Birri Gubba Nation, an Australian indigenous sovereign nation, has signed a memorandum of understanding (MOU) with Sovereign Wallet, to establish a comprehensive national digital identity system to serve as account addresses for sovereign digital currency. Sovereign Wallet is a blockchain technology company that developed the MetaMUI CBDC Cloud Service for creating digital currencies, which the Yidinji Nation, another Australian indigenous nation, used to launch its Yidindji Dollar (SYD) in 2022. The Birri Gubba Nation national identity and digital currency systems are set to go live in September 2024. If it is structured like the Yidindji Dollar, it will be pegged to the Australian dollar (AUD), although the mechanism hasn’t been revealed.

Since stable coins were first proposed as a less volatile arm of cryptocurrency their intended role has expanded far beyond an instrument for pure arbitrage to the lofty realm of a global currency ‘Holy Grail’. The race is truly now on to build the first institutionally adopted, universally accepted stable coin, with Tether rivals TrueUSD, Havven, USDCoin and Stronghold all joining the fray. But are stable coins being used in enterprise for any practical purposes or are they just a conduit for trading on the crypto markets?

"VariabL CCO Nathan Sexer undertakes an exhaustive study of stable digital assets and explains why they’re essential to the emerging decentralized economy"

Stablecoin, a cryptocurrency pegged to a stable asset, has been increasingly gaining traction in India, as more domestic cryptocurrency exchanges add TrueUSD (TUSD) and Tether (USDT) to their trading platforms, in an effort to minimize the impact of the previously imposed cryptocurrency ban by the Reserve Bank of India (RBI).

"Cryptocurrencies - digital tokens known as cryptos for short - have investors in the grip of a gold rush fever, with billions being traded every day. Prices fluctuate wildly, making them high-risk investments. But could a more stable, less volatile crypto persuade us to think of digital money less as a speculative investment and more as a mainstream "smart" currency?"

Union Bank, which has concentrated increasingly on blockchain this year, said issuing its so-called “Union Bank Payment Coin (UBPC)” was a further step towards becoming a “full-service blockchain investment bank.” UBPC will act as a stable coin, the institution explained, and will have fiat currencies “such as the Swiss franc” as its backing.

"New cryptocurrencies such as Tether may be pegged to the dollar, but they have big flaws"

White Paper

Stablecoins are, as some would like to say, the “Holy Grail” of cryptocurrencies. They promise to offer the stability of fiat currencies while maintaining the censorship-resistant features of cryptocurrencies. With the recent string of announcements¹ from stablecoin companies, we’ve decided to take a look at the growing asset class.