A new law in the United States could pose a danger to stablecoins and the industry as a whole.
This new law could jeopardize up to a trillion dollars in transactions.
Regulatory crackdowns like this could lead to an exodus from US shores for stablecoin issuers
The decentralized finance ecosystem is growing rapidly and is starting to gain the attention of regulators. A new law in the United States could put stablecoins and the industry at risk.
Stablecoins are the backbone of DeFi, as they provide the lion’s share of liquidity in the ever-growing number of yield holdings and lending incentives. New regulatory measures could put trillion-dollar deals in the nascent financial industry at risk, according to a new study from IntoTheBlock.
Demand for and issuance of stablecoins surged in 2020. Tether alone has increased its market capitalization and supply by almost 400% since January. There are now more than $ 20 billion in USDT in circulation, and regulators are starting to worry.
What is the Stable Act
A new bill from the US Congress called the “Stable Act” proposes strict regulations for issuers of stable currency such as Tether. The most important proposition is that all stablecoin issuers must have a banking charter or license, which is not currently the case.
As the latest Bitcoin Revolution newsletter indicates , such a crackdown could pose a significant threat to the DeFi industry, which is largely fueled by stablecoins such as USDT, USDT, and DAI .
The Stable Act also provides for the introduction of a Federal Reserve reporting and approval requirement at least six months prior to any new stablecoin issuance. Continuous auditing will also be a new requirement if the bill is passed. Another proposed rule is insuring or storing stablecoin reserves directly at the Federal Reserve, making it easier to convert to USD on demand.
If the Stable Act is passed, it will have a huge impact on the entire crypto industry.
Multi-billion dollar transactions
According to IntoTheBlock analyst Lucas Outumuro, who wrote the article, transactions involving stablecoins could be illegal if these strict regulations come into effect.
As of 2020, the cumulative amount of transactions made so far between USDT, USDC and DAI is over $ 1.04 trillion, which would be considered illegal if the Stable Act were passed at this time. moment .
He added that centralized stablecoins such as USDT and USDC , which now have more than $ 3.3 billion in circulation, could apply for a banking charter and meet the new strict requirements, but decentralized assets such as the DAI would be in trouble.
In addition, the bill also targets stablecoin validation software, which is considered illegal if it is not registered as a chartered bank. This would put Ethereum in the crosshairs since the majority of current stablecoins are based on the ERC-20 standard.
The European Central Bank has also warned against stablecoins and a major regulatory move like this could lead to an exodus of stablecoin issuers from the United States.