Currencies

Stablecoins to face alike defenses as customary payments

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Stablecoins will have to follow the same payment precautions as their more traditional counterparts, according to suggestions released by regulators on Wednesday as authorities’ grapple with a fast evolving sector.

Stablecoins are cryptocurrencies that are designed to have a steady value compared to traditional currencies or commodities such as gold, in order to minimize the volatility that makes bitcoin and other digital tokens unsuitable for most commerce.

The decision by Facebook Inc. (NASDAQ: FB) to launch its own stablecoin Diem, formerly known as Libra, in 2019 aroused concerns among governments and central banks that a major payments competitor may appear overnight with minimal oversight. Diem has since dialed back its goals and wants to develop a US dollar stablecoin.

On Wednesday, the IOSCO group of securities regulators and the Bank for International Settlements, a worldwide forum for central banks, laid out how present rules for large clearing, settlement, and payments services should be applied to ‘systemic’ or widely used stablecoins.

The plans, which will be put out for public comment before being finalized early next year, put into effect what regulators have long advocated: the same standards for the same sort of business and associated risks.

According to the laws, a stablecoin operator must establish a legal organization that outlines how it is regulated and addresses operational risks such as cyber threats.

Though still infrequently utilized for commerce, the use of stablecoins in cryptocurrency trading has expanded fast as retail and institutional investors warmed to the emergent asset class during the COVID-19 pandemic. Tether, the most valuable stablecoin, now has a market value of roughly $68 billion, up from $15 billion a year earlier.

According to CoinMarketCap, the value of circulation USD Coin, another major stablecoin, has also risen drastically to more than $30 billion from $2.7 billion a year earlier.

Countries that enable stablecoins to function would be expected to follow the principles as a condition of membership in IOSCO and the BIS. “This report marks significant progress in understanding the implications of stablecoin arrangements for the financial system and providing clear and practical guidance on the standards they need to meet to maintain its integrity,” IOSCO Chair Ashley Alder said in a statement.

The ideas do not address the challenges that are unique to stablecoins tied to a basket of fiat currencies, which are being considered separately.

Story by : Norvisi Mawunyegah