Can Stablecoins Make Crypto Rules and Regulations Easier?

Stablecoins are a type of cryptocurrencies that have market value to external sources such as fiat currency. Since it is pegged to a currency, it is less volatile than mainstream cryptocurrencies. It is also more useful than most mediums of exchange since it ensures price stability by maintaining reserve assets as collateral. In the present times, the growth of stablecoins is favorable as it can act as a bridge between centralized and decentralized currencies. It can help simplify the present complexities of crypto rules and regulations. Moreover, Donald Trump’s mission of creating a Bitcoin stockpile and retaining the US dollar as the global reserve currency may succeed only if stablecoins are brought under the ambit of a regulatory framework.

Influence of Crypto Rules and Regulations on Stablecoins

The existence of stablecoins is one of the driving factors behind the large-scale popularity of cryptocurrency exchanges, merchant payments, and other crypto-related activities. Since stablecoins are less volatile, risk-averse investors prefer them over cryptocurrencies. In the US, there are common regulatory principles that lead to better stablecoin regulations.

• Stablecoin payment services need to comply with the existing financial regulations. It has to offer protection to the bearer just like fiat currency-based payment systems give.
• The reserves need to be stable and liquid and must ensure coverage of stablecoins on a 1:1 basis.
• Stablecoin issuances need regulatory approval by the regulator.

It is important to note that cryptocurrency regulations are still in the discussion stage. However, as the industry grows, the interest in stablecoins will consistently increase prevent regulatory arbitrage, and promote transnational transactions. 

Crypto rules and regulations in the US

The enthusiasm, profitability, and optimism for cryptocurrencies have grown considerably. Since the end of 2021, around 28% of American adults own cryptocurrencies. The ownership of cryptocurrencies has doubled in only three years, which is unprecedented, to say the least. Around 46% of Americans familiar with crypto hope that the Trump regime will help cryptocurrency adoption in the US.

• The Ambit of Stablecoins under the Federal Reserve 

The US Senate wants to introduce a bill that aims to create a regulatory framework for stablecoins. US Senator Bill Hagerty introduced the GENIUS (Guiding and Establishing National Innovation for US Stablecoins) Act. The aim of the bill is to implement Donald Trump’s pledge to turn the US into a crypto capital. It also aims to create a new framework that can support innovation. The proposers of the bill believe that stablecoins can push the demand for US Treasurys and improve efficiency. 

• Variations in Regulations

There are significant degrees of variations existing now in state-level regulation of stablecoins. The money transmission laws apply to several stablecoin-related activities. However, there are states such as New York that have special guidance and regulatory regimes for stablecoins. New York’s Department of Financial Services (NYDFS) has proper guidance, unlike other states to deal with stablecoins. The New York Banking law is also applicable to BitLicense or limited-purpose trust companies. 

Benefits of Crypto Rules and Regulations on Stablecoins

The benefits of bringing crypto rules and regulations on stablecoins are going to have a worldwide impact on the financial sector. 

• Integration with Traditional Finance

This is by far the biggest advantage. The regulations may ensure that stablecoins do not disrupt the existing financial systems. It will substantially reduce the risk quotient associated with the cryptocurrencies. There are payment system regulations and standards that can benefit from this integration. 

• Jurisdictional Fragmentation

The jurisdictional fragmentation will be reduced considerably if well-planned regulations are enforced. Uniformity in regulations will automatically increase international collaboration and the development of global standards. From the perspective of lawyers and law enforcement agencies, uniformity is desirable because it reduces confusion and simplifies legal standards. 

• More Transparency

The enforcement of crypto rules and regulations will make stablecoins more transparent. It will help in bringing back sufficient reserves comprising liquid assets and high quality. The regulators also concentrate on collateral value and offer guidance towards the management and maintenance of reserves.

Conclusion

The regulation of stablecoins is essential to improve transparency and safety in the financial ecosystem. Since the cryptocurrency sector is witnessing massive growth since last year, there is an urgent need to have worldwide regulatory standards. Although it will require significant degrees of negotiations and discussions, the overall objective of crypto rules and regulations will be beneficial. The efficiency and integration of stablecoins however also depend upon how cryptos evolve as an alternative to fiat. The uncertainties associated with digital finance may subside considerably because stablecoins can offer financial stability, protect consumers, and serve as a bridge between centralized and decentralized financial systems.