Stablecoin Issuers Need to Think Fast to Avoid the SEC’s Net

Tether is in some bother with the SEC. It has the President’s Working Group on Financial Markets, an organization composed of the SEC, the CFTC, The Fed and The US Treasury announcing late last year that stablecoins, which include Tether should be considered as securities.  If Tether is indeed classified by the SEC as a security, then it could be sued by them for not registering its USDT as such.

Couple that with another threat from the Stable Act which recommends stablecoin issuers having to comply with a US banking charter, in order to “protect consumers from the risks posed by emerging digital payment instruments” and you have a potential catastrophe on the line for Tether and other major stablecoins. If Tether does get a fatal blow on the head from these two threats, then this could have an impact on the cryptocurrency market at large and certainly on the other stablecoins.

The Stable act seeks to make 4 major reforms, all with the goal of cracking down on stablecoins and other cryptos. These include:

• Any issuer of a stablecoin must first obtain a banking charter;
• Companies proffering stablecoin services to comply with necessary banking regulations under the current regulatory jurisdictions;
• Any issuer of a stablecoin gets permission from the Fed, the FDIC, and the appropriate banking agency six months ahead of issuing and to conduct ongoing risk and impact analysis.
• All stable coin issuers have FDIC insurance to keep reserves at the Fed to ensure that all stablecoins can be instantly exchanged for USD.

What Are Stablecoins?

This is a type of cryptocurrency that is more stable than a classic cryptocurrency as its value is tied to an outside asset like the USD or even gold which helps to keep the price less volatile and more stable.

What do these new threats mean for the other stablecoins?

Well, if these rulings and acts do come into play, then this is likely to equally affect all non-regulated stablecoins, giving more than a fighting chance for the financially regulated ones to outshine the likes of Tether.

One example is the USDC, which has been issued specifically by regulated financial institutions and backed by fully reserved assets, which makes it redeemable on a 1:1 basis to the US dollar.  The USDC is governed by the Centre, which is a membership-based group that sets standards for stablecoins. As such, the USDC has quickly become the largest stablecoin ecosystem anywhere, with many companies and protocols using USDC as its standard stablecoin. A gleaming example of what can be accomplished in murky waters.

If this is the case, then we are likely to see more coins like the USDC coming into play. The other use case where stablecoins can still be used given the above potential restrictions is for a token like CHIP, which rather than being a tradable asset that could be classed as a security, is rather a transactional token for enterprise use cases.  These include industries like online gaming, esports, and gambling – three areas that have seen an explosive influx of users during the coronavirus lockdowns. These operators then would not need to create their own tokens nor hold their own reserves against other stablecoins, the CHIP does it for them. The CHIP token is issued on ERC20 Ethereum and it is tracked by the BXTB token to generate actual yield for the holders. Perhaps with solutions like these, there is some wiggle room for new innovative stablecoins that slip under the regulators’ radar.

 

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