Tag: stablecoins
Scrutiny Falls On $43 Billion USDC Stablecoin’s Cash Reserves At Failed SVB
Circle said last week it had cut ties with Silvergate Bank, the crypto-friendly bank that halted operations and said it would “voluntarily liquidate” its assets earlier this week. Signature Bank’s holding company’s (SI) shares have dropped 12% on the news about SVB’s shutdown. Signature said in December that it would reduce deposits tied to crypto firms by as much as $10 billion. Simon Dixon, CEO of online investment platform BnkToTheFuture, tweeted that Circle’s chief executive Jeremy Allaire said the firm held “most of their cash is in BNY Melon,” while sharing a screenshot from March 2. BnkToTheFuture is an investor and shareholder in Circle.
Read more of this story at Slashdot.
Stablecoins could be the future of ecommerce digital payments
US Officials are Discussing How to Regulate Cryptocurrencies and Stablecoins
The lawmaker asked the agency to clarify what types of digital assets are securities, address how to issue and list digital securities, establish a registration service for digital asset security trading platforms, set regulations on how trading and custody of digital assets should be carried out, and determine what disclosures are required for potential investors to be informed about. “Given the complexity of these issues, and recognizing that some digital assets are securities, others may be commodities, and others may be subject to a completely different regulatory regime, a formal regulatory process is needed now,” Hickenlooper wrote in his letter.
“This will significantly improve policy development and allow the SEC to collect views and understand concerns. Furthermore, it will create clear rules that will benefit investors who currently may not be fully aware of the risks associated with digital asset investments….”
Hickenlooper also wrote that applying old market regulations to cryptocurrency would lead to financial services being more expensive and less accessible; leading to the agency’s disclosure regime being less useful to U.S. residents. “I recognize these questions are complicated, but it is time for the SEC to engage. Empowering innovators, fostering financial innovation, protecting investors, and ensuring market integrity are consistent principles,” the lawmaker concluded in his letter. “I look forward to working with you to build prudent rules as this powerful technology continues to develop.”
Meanwhile, the Securities and Exchange Commission wants some changes of its own, reports Reuters:
The U.S. Congress should give the Commodity Futures Trading Commission more powers to police cryptocurrency stablecoins to reduce risks to the financial system, Securities and Exchange Commission Chair Gary Gensler said on Friday…. With around $150 billion in market capitalization, stablecoins have many similarities to money market funds, and need to be regulated accordingly, Gensler said at a conference held by Georgetown University’s Psaros Center for Financial Markets and Policy in Washington…. “I think the CFTC could have greater authorities. They currently do not have direct regulatory authorities over the underlying non-security tokens,” he said….
The Financial Stability Oversight Council, a U.S. regulatory panel comprising top financial regulators, earlier this month recommended that Congress pass legislation addressing the risks digital assets pose to the financial system, including bills to bolster oversight of crypto spot markets and stablecoins. It remains unclear when Congress might pass crypto-related legislation, although several bills have been introduced to address stablecoins and digital commodities regulation.
Read more of this story at Slashdot.
Crypto News: BNB, MakerDAO, OPEC Oil Cut, Stablecoins & MORE!
🛒 Get The Hottest Crypto Deals 👉 http://www.coinbureau.com/deals 📲 Insider Info in my Socials 👉 https://guy.coinbureau.com/socials/ 👕 My Merch Store 👉https://store.coinbureau.com 🔥 TOP Crypto TIPS In My Newsletter 👉 https://guy.coinbureau.com/signup/ ~~~~~ 📺Essential Videos📺 Last Week’s Crypto Review 👉 https://youtu.be/MPA_k6FLCO4 Company Taking Over Crypto 👉 https://youtu.be/H_jGGSpjUbw Tornado Cash Sanctions 👉 https://youtu.be/oc7yxaWcwLU BIS Financial System Vision 👉…
Read More “Crypto News: BNB, MakerDAO, OPEC Oil Cut, Stablecoins & MORE!” »
What Are Stablecoins and Are They Less Risky? The Details Crypto Investors Should Know – CNET
Why don’t I have Stablecoins? Let me explain!
This article will explain why I do not hold StableCoin in my crypto wallet.
Built to fall? As the CBDC sun rises, stablecoins may catch a shadow
Will central banks allow stablecoins to survive? Maybe as a financial instrument for the unbanked or they will be able to peacefully co-exist?
arAre Stablecoins Truly Stable?
Are Stablecoins Truly Stable?
Cryptocurrencies can be tagged as the wild wild west where you have to hope for the best in terms of gains while simultaneously prepping yourself for the unforeseen. Within a matter of minutes or a few hours, things can shift from the utterly favourable to negligibly ugly, leaving investors (token holders) with an eternal combination of a bitter-sweet taste.
Enough of the twisted words and literary exposition.
Amid the chaos of cryptocurrency, stablecoins were created to offer respite and a haven to users. More like an avenue to erase speculations and hold digital assets in a stable mode, close to physical cash. They are meant to be digital equivalents of regular currencies such as the Euros, US dollar, and Pounds. This way, crypto users who hold equivalent can easily trade their assets for cash in the bank.
This arrangement seems good until it does not. So, what then happens when your stablecoins become unstable?
The Stability in Stablecoins
Agreed that stablecoins are meant to be resistant to crypto market sentiments, but the foundation of these classes of digital assets is what largely determines how resistant they will be in the face of market turbulence.
In clear terms, all stablecoins are not built in the same way, therefore, they are backed by different asset classes. Most are backed directly by cash equivalent in cash reserves (traditional banks), while others are backed by other forms of cash equivalent such as treasury bills, gold, and the likes. Other stablecoins, however, are algorithm-pegged, meaning that their stability hinges on the value and stability of other digital assets (cryptocurrencies).
As an instance, stablecoins such as USDT, USDC, and BUSD, maintain their equivalence to the dollar by maintaining cash reserves, while DAI and the defunct TerraUSD are algorithmic stablecoins.
Are Stablecoins Stable?
Well, the answer is both “Yes” and “No”. Otherwise, we can say that they are relatively stable. So, here is it — it is quite common that stablecoins veer off their direct currency peg from time to time but the underlying rule is that they come as close to their peg as possible. Stablecoins with cash reserves have mostly stayed within 0–0.02% of their pegs over the years. This has helped them gain the status of relative stability.
For a coin like BUSD, it maintains the exact equivalence of its digital value in cash deposit reserves, and its state is published at the end of every month. For USDT, it maintains a much more diverse portfolio of assets as a backup. It holds its cash reserves in the form of treasury bills, gold, bonds, and other forms of stable assets.
On this ground, stablecoins that maintain cash reserves (or equivalent) can stand the test of time and are much more durable since there is the money equivalent to the digital asset.
Where Comes Instability
Contrary to how stablecoins with cash reserves work, algorithmic stablecoins do not have any form of cash reserve as a backup. They rely on a system where their value of maintained by being directly pegged to the value of another digital asset, usually another token.
To maintain their stability, algorithmic stablecoins burn and mint tokens when necessary. When the price of the pegged asset goes up, the number of algorithmic tokens is burned to preserve the price, while more tokens are minted when the price of pegged token goes down. Therefore, constant minting and burning are ongoing, controlled by the on-chain forces of demand and supply.
This arrangement makes perfect sense but leaving everything to an algorithm is a lot of risks as became evident in the crash of the Terra USD algorithmic stablecoin. The crash was precipitated by the inability of the pegged algorithm to maintain the burn-mint mechanism with more tokens required to be minted as a result of the bear market crash that had impacted LUNA. Within hours Terra crashed to a quarter of a dollar and went on a spiral that it never recovered to date.
Final Thoughts
Stablecoins are elements of stability on the blockchain. Intrinsically, they hold the key and serve as the gateway between the real world and the blockchain. However, their approach to maintaining on-chain stability goes a long way in determining how stable they can be. For now, it is safe to tend towards stablecoins with cash reserve as they have a reserve that effectively helps them maintain stability.
Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing
Also, Read
- Huobi Review | OKEx Margin Trading | Futures Trading
- Sparrow Exchange Review | Nash Exchange Review
- The Best Crypto Tax Software | CoinTracking Review
- Stackedinvest Review | Kraken Review | bitFlyer Review
- Best Crypto Lending Platforms | Leveraged Token
arAre Stablecoins Truly Stable? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.