The US Treasury Department has proposed regulating stablecoin issuers as a banking institution, which can be a great idea if stablecoin issuers are offered the same privileges as regulated banks.
US Treasury Department report: Regulation of stablecoins is necessary
The rise of stablecoins within the crypto ecosystem serves as a reminder that cryptocurrencies and blockchain technologies have outgrown their humble beginnings and are gradually challenging the current hegemony of traditional financing.
As the market capitalization of stablecoins grows at an unprecedented rate, governments and financial regulators around the world have begun to focus on better regulating this growing asset class. Stablecoins are provided by “stable” assets that allow them to maintain a constant value relative to the underlying asset. Thanks to this feature, stablecoins are increasingly used to facilitate lending and trading with other digital assets.
The stablecoin market currently has a capitalization of more than $ 135 billion, with significant chances of further growth as it begins to gain the attention of companies and individuals as a method of payment. Governments and financial regulators around the world are therefore trying to regulate them.
The idea of regulating stablecoins as banks
At the moment, almost every country is either developing or has already introduced regulatory guidelines for cryptocurrencies. But the US government is one of the first to be very interested in stablecoins.
From Federal Reserve Chairman Jerome Powell, who urges the need to regulate stablecoins – especially those pegged 1: 1 with the US dollar – to Securities and Exchange Commission President Gary Gensler, who emphasizes the benefits of regulation for both service providers and consumers , stablecoins have become a major topic of regulators.
Another risk that concerns regulators is transparency. While the coins may seem tied to the US dollar, significant portions of the most popular stablecoins, such as the USDT, USDC and BUSD, are in fact covered by commercial paper and US government bonds, which function as “cash-like” securities.
The latest US Treasury Department report states that there is an urgent need for regulation on stablecoins, as they pose risks to the integrity of financial markets. The report further points out that since stablecoins play the same role in the traditional economy as bank-regulated fiat currencies, stablecoin companies should be regulated as banks.
To do so, governments and regulators must also ensure that companies are treated similarly to regulated banks.
So if the US Treasury wants to regulate stablecoins like banks, it should also allow stablecoin companies to maintain a fractional reserve model. By comparison, deposit-taking banks in the US are generally required to hold only a certain share (usually around 10%) of all total cash deposits.