stablecoin

The increasing growth in stablecoin markets has regulators on watch as many countries are requesting regulatory framework. Ever since Facebook released the Libra white-paper, policymakers have been shifting focus, addressing many of the concerns that banks and other financial institutions have. In recent developments, Germany, France, Italy, Spain, and the Netherlands have reached out to the European Commission, seeking firm regulation on stablecoin framework. 

Europe And Stablecoin Framework

According to a recent report by Reuters, large European states have reached out to the European Commission, requesting strict regulation on stablecoins and other cryptocurrencies that are considered “asset-backed.” It is important to note that stablecoins are considered “asset-backed” since they tend to be digital assets backed 1:1 with fiat currencies. An example would be USDC, which is Circle’s regulated stablecoin that is backed on a 1:1 basis for US dollars. According to the report, Germany, France, Italy, Spain, and the Netherlands are the 5 regions calling on the European Commission.

Regulatory Clarity

In a push to protect consumers, the 5 countries are seeking strict guidelines that could stifle private sector operations. According to German Finance Minister, Olaf Scholz, he believes that all private sector companies working with asset backed cryptocurrencies should be banned if they do not meet certain requirements. Additionally, the 5 countries reaching out to the European Commission are requesting stablecoins to be backed 1:1 against fiat currencies, with reserve assets being denominated in the Euro and parked at approved financial institutions in the EU.

If a company plans to roll out stablecoin infrastructure, the 5 European states believe that these companies should be required to register in the EU. This could be a big blow to companies like Facebook that want to roll out a stablecoin ( Libra ) that could essentially be in the hands of people on a global scale. The EU has been following Libra developments for a while, stating last year that the project had no chance in the region unless proper rules and regulations were in place.

In the report, French Finance Minister Bruno Le Maire stated that: 

“We’re waiting for the Commission to issue very strong and very clear rules to avoid the misuse of cryptocurrencies for terrorist activities or for money laundering.”

Stablecoin Growth

With stablecoin adoption growing on a global scale, regulators are fully engaged in the financial transition. According to a report by Bitstamp and Coin Metrics, the supply of stablecoins was growing at the fastest pace ever in July of this year. With traditional cryptocurrencies having high volatility, the market is transitioning to stablecoins, which lack upside potential, but use the underlying infrastructure of cryptocurrencies to carry out everyday tasks that can not withstand high volatility. Since most stablecoins are pegged 1:1 with a reserve currency, volatility tends to be stable.

We can see the exponential growth in stablecoins this year by looking at supply levels. Over the last 5 years, supply reached 6 billion. If we assess this years activities, supply had doubled to 12 billion in only 4 months. Stablecoins even exceeded their typical $1 price level this year as demand was pouring in. Top stablecoins seeing increased demand were USDC, USDT, PAX, BUSD, and HUSD.

Stablecoin Lending

Aside from low volatility, another catalyst in stablecoin growth is the lending industry. Digital asset markets have seen stablecoin lending take off this year as investors seek higher yields. With the Federal Reserve keeping traditional interest rates at near 0% levels, investors receive little to no yield from traditional banks. With emerging companies in the cryptocurrency space such as Celsius Network offering 16% APY on various stablecoins, it becomes evident why stablecoin markets are gaining so much attention.

Image Source: Unsplash 

Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the crypto currency they discuss. The information and content are subject to change without notice. Visionary Financial and its affiliates do not provide investment, tax, legal or accounting advice. This material has been prepared for informational purposes only and is the opinion of the author, and is not intended to provide, and should not be relied on for, investment, tax, legal, accounting advice. You should consult your own investment, tax, legal and accounting advisors before engaging in any transaction. All content published by Visionary Financial is not an endorsement whatsoever. Visionary Financial was not compensated to submit this article Please also visit our Privacy policy; disclaimer; and terms and conditions page for further information.

VF Newsletter

Get the VF weekly recap dropped right into your inbox!

You May Also Like

Philanthropist Bill Pulte to Help Africans With Bitcoin

Bill Pulte who has become famous for his act of generosity and…

How BSOV Token Price Can Benefit From Greater Mining Costs

The BSOV Token  With all the noise, scams, price fluctuations, and fake…
NULS Blockchain

veriTAG Leverages NULS Blockchain to Solve Asia’s Food Safety Problem

SAN FRANCISCO – August 27, 2020 – VeriTAG, a cloud-based tracking system…

Waves Ports High-Interest Yielding Stablecoin Neutrino USD to Ethereum Network

Paves Path for Decentralized Forex and Inter-Chain DeFi SAN FRANCISCO- August 18,…