The Stablecoin market has grown significantly – from just $ 21.5 billion in mid-October last year to $ 130 billion in early November; Sixfold – so it was reasonable to expect the US government to handle these digital assets designed to maintain a stable value against a fiat currency such as the US dollar (USD) or a commodity such as gold.

This week, the Treasury shared its latest thoughts on the matter with the long-awaited PWG report on stack coins. This report calls on Congress to take immediate action to ensure the regulation of payment-stable coin issuers such as US banks. This means that stack coins can only be issued by “institutions that are secured depository institutions.”

Surprisingly, the report did not create much resistance from the industry. Maybe the crypto community is relieved that the government is not trying to ban stablecoins completely? But the report raised some questions.

If adopted, what impact will such legislation have on the global stablecoin market? Can this stifle innovation, as someone in the crypto community has warned? Or, alternatively, could this bring regulatory security to a sector whose lack of oversight could deter institutional, corporate and even retail investors from exploring alternative cryptocurrencies?

An advantage for old banks?
Regarding the first question, Salman Banai, head of policy at the crypto-intelligence firm Chainalysis, told the Cointelegraph that if the recommended law is passed and signed into law – the most important “if” given the current legislative deadlock in Washington – will its provisions ” Existing bank-backed stack coins such as JPM Coin are in a strong competitive position compared to non-bank stack coin issuers. ”

Non-bank Stablecoin issuers will, as a minimum, have to renegotiate agreements with existing banking service providers, and the latter will have more influence in these partnerships, Banai continued. The PWG report suggests that many of these issues will be governed by banking law. “Alternatively, non-bank issuers of stablecoin can apply to become custodians or buy custodians, although these options can be expensive and slow.”

But will this hinder the development of financial start-up and innovation, as some in the crypto environment fear? Al Banai replied that in the short term, this is likely to hinder innovation, as it limits the selection of potential stable coin issuers to custodian institutions. “Ultimately, however, legislation will stimulate innovation,” as clear regulatory “rules of conduct” will eliminate regulatory risks that have been a major obstacle to the widespread use of stack coins.

This in turn can “drive the use of stack coins in various contexts in the financial markets,” Banai continued. The fixed costs associated with issuing stable coins are relatively low, and this can “encourage depository institutions to compete by offering stable coins and introducing or facilitating their use” in a variety of circumstances.

The gateway to the world of cryptocurrency?
In a blog post in August, Chainalysis chief economist Philip Gradwell wrote that “stack coins are important to many institutional investors because they are the primary gateway to the digital currency world.” If so, would not institutional and corporate investors prefer more market and regulatory confidence over stack coins? I mean, would not you say they support PWG’s recommendations?

In Europe, regulatory ambiguity «undoubtedly scares them away [i.e. institutional investors] from owning stablecoins, investing in cryptocurrencies with stablecoins, and using stablecoins to earn on DeFi or issue stablecoins themselves, says Patrick Hansen, head of strategy and growth at Unstoppable Finance, to Cointelegraph and adds:

“But unlike many retail investors, most institutions do not buy cryptocurrency through stablecoins anyway, but either with fiat money or through some form of cryptocurrency, certificates or derivatives – and in the future, perhaps more and more through ETFs.”
Siddharth Sujani, CEO of the cryptocurrency research firm CREBACO Global, is admittedly not a fan of stack coins, tends to agree. “No one wants to own a stablecoin if it is not required to make a profit. Also, with several ways to invest, including ETFs and the like, I think people are restricting access to stablecoins,” he told Cointelegraph.

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