Stablecoins

Paul Ryan Says 'Stablecoin Legislation Would Be A Good Step' To Strengthen US Treasuries​

One of the few pieces of legislation that could actually pass through Congress into law poses an existential risk to bankers, experts said.

Lawmakers in both the House and the Senate — and on both sides of the aisle — have spent the last several years negotiating legislation that's meant to set up a regulatory framework for stablecoins.

Although multiple proposals are floating around Capitol Hill, the most prominent candidate is the yet-unreleased bill from Reps. Patrick McHenry, R-N.C., and Maxine Waters, D-Calif., respectively the chairman and the ranking member of the House Financial Services Committee.

The chances of this advancing beyond the House committee stage got an additional boost earlier this month as Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee and a longtime skeptic of crypto legislation, signaled some willingness to consider a stablecoin bill if it was packaged together with a cannabis banking bill.

There's multiple avenues for that package to be considered, including an upcoming must-pass defense spending bill, according to three committee sources familiar with discussions. Other crypto legislation is scheduled to receive a vote in the House this week.
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Tether, the issuer of the USDT stablecoin and a leading player in the digital asset industry, has made a strategic investment of $18.75M in XREX Group, a fully regulated, blockchain-enabled financial institution. The investment aims to drive innovation in the digital asset industry and facilitate USDT-based cross-border payments in emerging markets. XREX will use the funding to offer businesses greater ease, efficiency, and potentially lower costs in financial transactions. In collaboration with the Unitas Foundation, XREX will also launch XAU1, a USD-pegged unitized stablecoin over-reserved with Tether Gold (XAUT), providing customers with a stable alternative and a hedge against inflation. This partnership will also enhance solutions to detect and prevent illicit use of stablecoins.

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The former speaker of the House, Paul Ryan, published an op-ed in the Wall Street Journal last week claiming that stablecoins could be a magic bullet to address the country’s looming fiscal train wreck. I normally don’t pay these sort of pieces much attention since they typically involve—as is the case here—a former politician shilling for whatever industry is paying them these days. This one, though, deserves more consideration than most.
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As Ryan notes, longtime buyers of U.S. debt like China and Saudi Arabia have already started to pull back, threatening the long-term status of the dollar as the world’s reserve currency—a status that makes it cheap for America to borrow and lets it flex enormous economic influence overseas. What to do about this? The obvious answer is to reform runaway Social Security and Medicare spending. But neither Trump nor Biden dares to touch that. And so we have Ryan’s plan B: stablecoins.

Ryan observes that, if fiat-backed dollar stablecoin issuers (think Tether, USDC, and PayPal) were a country, its U.S. debt holdings would exceed those of Saudi Arabia. Meanwhile, he makes the point: “If other countries are successful at bolstering their currencies’ influence while dumping Treasury debt, the U.S. will need to find new ways to make the dollar more attractive. Dollar-backed stablecoins are one answer.”

It’s not a crazy idea. Stablecoins are taking off in countries like Nigeria and Argentina, where lousy rulers have made citizens reluctant to hold the local currency. They are also cheap and easy to move around and, as Ryan points out, “permissionless blockchains come packaged with the deeply American values of freedom and openness.” The more widely stablecoins spread, the more people there will be with a vested interest in the success of the U.S. economy.
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Wyoming is pushing crypto payments and trying to beat the Fed to a digital dollar​

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In this study, we investigate stablecoin usage in five emerging markets, where gaining access to dollars is challenging or impossible. Anecdotally, we know that stablecoins are crossing the chasm into being used as digital dollar equivalents, used for remittances, cross border payments, international trade settlement, and treated as savings instruments for regular folks. But proof has been hard to come by. So we undertook a survey of 2541 crypto users in Brazil, India, Indonesia, Nigeria, and Turkey, to better understand how these individuals engage with stablecoins in their everyday lives.
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Why Wyoming is developing its own stablecoin​

Stripe Inc. said individuals from more than 70 countries have used stablecoins for online transactions during the first 24 hours after allowing merchants using its platform to accept crypto payments again.

Stripe merchants in the US were authorized as of Oct. 9 to receive the Circle-issued stablecoin USDC through their online checkout pages. ...

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Stablecoins, especially Tether, have become a main actor in the dollar exchange markets in Latam countries. Venezuelans are harnessing Tether, which commands a market cap of nearly $120 billion, given the large gap between the government’s official dollar exchange, dictated by the volume negotiated in banks, and the black market dollar price, handled in peer-to-peer markets.

The difference between these rates, which in the last month has reached over 20%, has created disruptions in the Venezuelan economy and ramped up the stablecoins adoption as a savings tool, but diminished the use of dollars as a medium of exchange. This is because, in stores and businesses, each dollar can be only received at the official dollar rate, causing potential losses to its users.

While the government injected over $190 million in August to provide liquidity and contain the exchange rate, positioning over $4 billion until October 15, but it has just slowed its rise. This trend has proven to be a burden for the ailing Venezuelan government, which has to spend a significant part of its income to artificially maintain low exchange rates to keep the stability of the national economy.

Tether has been a key player in the Venezuelan exchange rate for some time, given the scarcity of physical dollars in the country. Kevin Hernandez, a local cryptocurrency market analyst, estimates that 76% of the crypto transactions in the country involve USDT. He detailed that the P2P markets manage almost $28 million in USDT each month, showing the strength of the stablecoin in the Venezuelan economy.
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Abstract

Using a new series of crypto shocks, we document that money market funds' (MMF) assets under management, and traditional financial market variables more broadly, do not react to crypto shocks, whereas stablecoin market capitalization does. U.S. monetary policy shocks, in contrast, drive developments in both crypto and traditional markets. Crucially, the reaction of MMF assets and stablecoin market capitalization to monetary policy shocks is different: while prime-MMF assets rise after a monetary policy tightening, stablecoin market capitalization declines. In assessing the state of the stablecoin market, the risk-taking environment as dictated by monetary policy is much more consequential than flight-to-quality dynamics observed within stablecoins and MMFs.

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Tether said its investment division financed a $45 million crude oil transaction between a major oil company and commodity trader, part of the USDT issuer's attempt to expand beyond its influential stablecoin roots.

The issuer of USDT, the third-largest cryptocurrency, is seeking to carve out a niche within the $10 trillion trade finance industry — which plays a crucial role in facilitating international trade and commerce by reducing risks associated with cross-border transactions. Tether revealed its plan to enter commodities trade finance last month, and it's also expanding into venture capital, bitcoin (BTC) mining and artificial intelligence.

The October transaction involved 670,000 barrels of Middle East crude oil cargo and took place between "a publicly traded super-major oil company" and "top-tier commodity trader," Tether said.
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pmbug said:

How dumb are these supposedly smart people? Stablecoins are primarily used for jumping into and out of crypto (non-stablecoin) investments. They are not interest bearing investment vehicles like MMFs. "They behave differently!" No shit, Sherlocks!

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This group of cryptocurrencies is starting to make a dent in demand for short-term Treasurys​

Cryptocurrency exchanges in Europe are preparing to delist locally noncompliant stablecoins as European crypto regulations near an enforcement deadline.

Coinbase Europe, Coinbase Germany and Coinbase Custody International will delist Tether’s USDt (USDT) and five other stablecoins on Dec. 13, Coinbase told Cointelegraph on Thursday.

“Based on the latest information, we currently expect we will have to restrict services for the following assets: USDT, PAX, PYUSD, GUSD, GYEN, and DAI,” Coinbase said, referring to the coins as assets restricted by Europe’s Markets in Crypto-Assets Regulation (MiCA).

Coinbase will continue supporting USD Coin (USDC) and the euro-pegged EURC (EURC) stablecoin, jointly operated by Coinbase and the US crypto company Circle.
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Ripple CEO Brad Garlinghouse announced on Tuesday that the RLUSD stablecoin, a cryptocurrency designed to maintain a steady value in line with the U.S. dollar, has been approved by the New York Department of Financial Services. While stablecoins can operate without this approval, Ripple sought to be added to New York’s “greenlist” to gain credibility as a compliance-first company and access the New York market, ensuring that the coin complies with the state’s regulatory standards.
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Despite the sector’s massive growth, two rival stablecoins—Circle’s USDC and Tether’s USDT— have about 90% market share, according to Coingecko data. While other companies have struggled to make inroads with their own challengers, Garlinghouse is confident that Ripple will outcompete these current leaders and become the “gold standard for enterprise-grade stablecoins.”

Toe Bautista, a crypto analyst at market maker GSR, told Fortune that while stablecoins are one of the most “ironclad businesses in crypto,” they are also one of the hardest to get off the ground because they require a substantial amount of capital to back each stablecoin with an equivalent fiat-currency.

Ripple has promised that the stablecoin will be 100% backed by U.S. dollar deposits, short-term U.S. treasuries and other cash equivalents. Bautista says Ripple holds large monetary reserves, including 80 billion XRP allocated to the company in 2012, that will make it easier for the company to deliver on this promise.
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pmbug said:

European MiCA regulations are causing some CEXes to drop support for Tether (USDT) and a few other stablecoins:
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In anticipation of the EU’s looming Markets in Crypto Assets (MiCA) regulations, European exchanges are delisting Tether (USDT) en masse. This may severely hinder the EU market’s ability to capitalize on the crypto bull market.
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It has been clear for several months now that Tether’s USDT, the largest stablecoin, will not meet MiCA compliance. According to a new report, EU exchanges have until December 30 to delist the asset. However, apprehension is growing in the European crypto community, as Tether’s retreat may have an outsized impact on the space:
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Voodoo said:

Why does the market even have or create Stablecoins? I don't really get it. Is it just to make it easier to swap coins around? Seems like it would be pretty easy to sell Bitcoin for Ethereum but I suppose both have time delays, delays that also differ between them and at different times.

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Voodoo said:

Why does the market even have or create Stablecoins? I don't really get it. Is it just to make it easier to swap coins around? Seems like it would be pretty easy to sell Bitcoin for Ethereum but I suppose both have time delays, delays that also differ between them and at different times.

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Tether and its subsidiaries are about to complete all formalities to relocate to El Salvador, following the successful acquisition of a Digital Asset Service Provider (DASP) license and as a stablecoin issuer, marking a step in Tether’s journey to foster global Bitcoin adoption. ...

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The move will see Tether relocate incorporated subsidiaries to El Salvador and create its first brick-and-mortar headquarters, a company spokesperson said. Previously most of the group's entities have been incorporated and licensed in the British Virgin Islands (BVI), a source familiar with the company's operations told CoinDesk. The move does not affect the company's existing presence in Swiss crypto hub Lugano, the source added.
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The relocation is a massive development for El Salvador's aspirations as a crypto hub. Tether is one of the biggest digital asset companies and reported $7.7 billion in net profits for crypto in the first three quarters of 2024. That's roughly 20% of the country's annual GDP, per IMF data.

The move could also bring significant advantages for Tether, too, enjoying the country's tax benefits aimed to attract tech and crypto firms. The "potential relocation leverages El Salvador's new ICT Innovation Law, which offers 15-year tax exemption for tech firms on income, property and capital gains," noted Matthew Sigel, head of digital asset research at investment firm VanEck.
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Peter89 said:

Cryptocurrencies were born in order to be used as currencies - that's why their name - but because of their volatility they can't be used as currencies. Stablecoins are meant to be used as currencies.

Stablecoins are bought by people in countries with high inflation. They are an easy and cheap way for people to protect their wealth from inflation.
The problem is that the major stablecoins are pegged to the US dollar, so they protect less and less from inflation.
That's why those people need gold backed stablecoins.

Third, as PMB says, SC are used by crypto traders when they exit their positions in volatile cryptos but they don't want to convert them into fiat - usually, I'm told, that implies fees. So they park their money in SC.

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Voodoo said:

So essentially its just the brokerage account cash but for some reason the exchanges have added fees to actually convert to whatever local currency. That still seems quite suspect to me. Great way to steal cash. Just like brokerages lending all your stuff out overnight.

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Key Takeaways

• Justin Sun said First Digital Trust is insolvent and called on users to withdraw funds and regulators to intervene.
• The warning came hours after filings revealed Sun bailed out TUSD when $456M in reserves were frozen in unauthorized investments.

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The bitcoin price is set by trading, and that’s overwhelmingly trading against the unregulated Tether and FDUSD stablecoins on Binance.

The volumes of just the BTC/USDT and BTC/FDUSD trading pairs on that one exchange swamp all other trading in bitcoins. Coinbase or regulated ETFs aren’t even in the running.
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The Tether and FDUSD stablecoins’ backing is also extremely dubious. Tether admits that a large part of their backing is loans of USDT, where they create USDT out of thin air then claim the loan itself is the reserve asset backing those USDT. And I flatly don’t believe FDUSD is meaningfully backed by actual dollars.
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