Competition Between USDT, BUSD, PAX, and USDC Intensifies As Regulators Weigh In On Stablecoin Regulation
A supremacy war is brewing between the most popular stablecoins such as Tether’s USDT, Binance’s BUSD, Paxos’ PAX, and Circle’s USDC after U.S regulators highlighted the need for more stablecoin regulation.
Recent reports revealed that a task force called the Presidental Working Group on Financial Markets planned a meeting during which they were to talk about stablecoins. This is after regulatory and financial authorities expressed concerns about the unregulated nature of stablecoins and the dangers that it would pose.
According to Decrypt, not much was achieved during the meeting. Meanwhile, Janet Yellen, the U.S Treasury secretary called for swift action to make sure that the U.S has a proper regulatory framework for stablecoins. The PWG promised to provide regulators with recommendations on how to approach the matter within the next few months. The regulatory pursuit has encouraged competition between the top stablecoins with some claiming to be more secure and transparent than others.
The battle for supremacyMost centralized stablecoins such as those pegged to the U.S dollar claim to be backed by fiat currency reserves. However, most of them are not as “fiat-backed” as they claim to be. For example, only 61% of USDC is backed by cash and cash equivalents while the rest are backed by less liquid commercial paper, corporate bonds, and U.S treasuries. This means there is a substantial amount of stablecoin backed by debt.
Paxos recently revealed that 96% of PAX and BUSD are backed by cash and cash equivalents while the remaining 4% are backed by U.S treasury bills. Paxos also took a jab at USDT and USDC for not having enough cash collateral. The companies behind these stablecoins might be fighting for supremacy because they believe that one stablecoin will remain while the rest will fall once the regulatory requirements are implemented. It is also possible that they are fighting for supremacy because the stablecoin at the top will earn handsome transaction fees.
Why traders should be concerned about whether their stablecoins have ample cash-backed reservesIf you are a crypto trader, chances are that you avoid crypto downturns by converting your cryptocurrencies to stablecoins and then buying back at lower prices. Or maybe you move your crypto from one asset to another through stablecoins. Whatever the case, if a run on the bank type of event was to happen to the stablecoin you are holding, then you would likely lose money if locked in due to the lack of liquidity.
Nobody wants to find themselves in such a situation, thus stablecoins with a higher cash backing will be more attractive in the future. They are also more secure but there is still uncertainty regarding how the government will implement regulations for stablecoins. Even if that happens, some coins are decentralized which will be difficult to regulate, such as DAI.
One potential regulatory approach is likely forcing exchanges to delist stablecoins that do not conform to the fiat-backed reserve requirements. In this case, coins like DAI would be ousted but they would still be heavily used in DeFi platforms. DAI uses an incentivized mechanism to maintain its peg with the U.S dollar, thus eliminating the need to be backed by fiat reserves.
The fiat-backed reserves approach might also pave way for another problem. The U.S Securities and Exchange Commission might go after such stablecoins with the claims that they are securities. The SEC chairman recently stated that stablecoins might be classified as securities because their value is pegged to the value of another asset as is the case with derivatives and stocks. If the SEC pursues this direction, then coins like DAI will emerge on top. Please spread your opinion below and let people known your thought ..(Source:The Currency Analytics)
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