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A Regulated Stablecoin Means Having a Regulator


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This is really, really good. 

https://www.paxos.com/a-regulated-stablecoin-means-having-a-regulator/

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I have been reading with a combination of disbelief and exasperation the recent claims by Circle that “USDC has become the world’s most trusted and well-regulated dollar digital currency,” as well as claims by Tether that “Tether is registered and regulated.”  Neither USDC nor Tether is a regulated digital asset, for the simple reason that neither token has a regulator. In fact, neither USDC nor Tether tokens are “stablecoins” in anything other than name. These tokens are backed by illiquid and risky debt obligations – a critical weakness that no prudential regulator would allow to exist as this creates undue risk for their customers.

As a former financial regulator, and through my role at Paxos Trust Company, I have participated in the hard work of getting actual regulated stablecoins approved by an actual regulator, subject to the actual limitations that being regulated puts on a token. So I know what it means for a digital asset to be regulated; it means that a prudential regulator imposes safety and soundness requirements on the reserves backing the asset. As this ecosystem rapidly expands, it’s important to clarify what regulation is and what it is not. 

@brianwalden @KarmaCoverage @mars75 @cmbartley @PunishmentOfLuxury @RobertHarpool @Mercury 

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It makes me wonder whether Ripple ceased work on a potential XRP collateralized stablecoin – as proposed by David Schwartz – if they saw this regulatory storm coming. Ripple have enough legal and regulatory problems on their plate already. 

This might end up being BOTH massive regulatory failure (as in, failing to actually regulate or provide a framework and/or enforce it) AND regulatory overreach in the sense that while "centralized" schemes clearly require regulation (audits, reserves, FDIC/insurance, etc etc), I don't see how decentralized schemes would fall under the purview of the SEC.

But apparently, that's what Gensler wants. Meet the new boss, same as the old boss?! Read for yourself:

https://www.sec.gov/news/speech/gensler-remarks-aba-derivatives-futures-law-committee-virtual-mid-year-program-072121

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Before I conclude, I’d briefly like to discuss the intersection of security-based swaps and financial technology, including with respect to crypto assets. There are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives.

Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.

If these products are security-based swaps, the other rules I’ve mentioned earlier, such as the trade reporting rules, will apply to them. Then, any offer or sale to retail participants must be registered under the Securities Act of 1933 and effected on a national securities exchange.

There's some good here and some stupid. But maybe I'm misinterpreting. I personally think synthetic pegs that are created by network protocols can no more be securities than bitcoin can be, for the precise reason that there's no issuer or single point of failure/redemption. 

This has serious implications for Sologenic, the Flare Network and Trustline/Probity for example. 

Edited by thinlyspread
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