Squashing Tether

Federal regulators requested more power from Congress to regulate stablecoins, a fast-growing type of cryptocurrency that they warn could result in bank runs and consumer abuse unless lawmakers act quickly, according to a report issued Monday by the Treasury Department.

Welcome back guys so earlier this week the president’s working group on financial markets released their report on stable coins this report gives us the official position of all the u.s financial regulators on how they feel stable coins and thus cryptocurrencies in general should be regulated and to cut to the chase the regulators are saying that stable coins

Should be regulated like bank deposits now this is a very high standard of regulation in truth it’s a much higher level of regulation than i expected there’s approximately 130 billion dollars in stable coins right now and none of it even comes close to meeting the standards required of a bank now should congress pass a law bringing this type of regulation into

Effect it would have massive repercussions on the crypto space and so that’s what we’ll talk about in today’s video okay so first up what are stable coins well they’re a type of cryptocurrency but they’re quite different to the speculative coins that you hear a lot about things like bitcoin and ethereum a stablecoin is a cryptocurrency that’s supposed to always

Be worth a dollar there’s a number of ways that these things can be structured but the simplest kind is what’s known as a backed stable coin where you sell coins for one dollar take that dollar put it in a bank or some sort of safe interest-bearing security and then stand ready to buy back the stablecoin with that dollar upon request so why do these things exist

They might at first sound entirely unnecessary but they exist because the banking system is heavily regulated their capital requirements requiring banks to have more assets than deposits there are kyc and anti-money laundering requirements and when people want to do banking like activities in crypto without being subject to that regulation they can use these coins

Gary gensler the chairman of the sec has compared stable coins to casino chips they’re a way of storing money for use in crypto now to a certain extent these are like the on and off ramps to crypto trading and investing once you put your money in a stable coin you can then use it to buy and sell other cryptos without having to interact with the traditional banking

System for each transaction compared with things like wire transfers of dollars stable coins can settle deals far more quickly the speed of settlement has very little to do with advanced blockchain technology though it relates much more to avoiding the red tape of the banking industry stable coins are also used in decentralized finance where they can earn income

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For investors in a variety of ways including being lent out to other users or being used to provide liquidity for trading due to the current lack of regulation in the crypto space stable coins can be likened to numbered bank accounts meaning that you can have tens of millions of dollars if not billions of dollars in an account with no known owner if you have the

Keys to that account it’s yours regulators and tax authorities right now don’t really know who owns that money or necessarily where it came from now coins have been around since around 2014 but their use exploded this year in 2021. in january there were around 30 billion dollars worth of stable coins in circulation and by october there were 130 billion dollars in

Existence the market leader is tether which makes up more than half of the stable coins in existence tether has been in regulator sites for quite a while a zeke foe from bloomberg describes tether as a company that seems to be practically quilted out of red flags in february they paid 18 and a half million dollars to settle with the new york attorney general who

Accused tether and its sister exchange bitfinex of covering up massive losses the investigation said that for periods of time the company had no access to bank accounts anywhere in the world despite its claims that it held one dollar for every tether okay so let’s get to the report the president’s working group on financial markets is made up of the secretary of

The treasury and the heads of all the key u.s financial regulators the report which i’ve linked to in the description says that stablecoin issuers should become insured depository institutions on a par with banks that offer savings accounts to customers an argument can be made that these things could be regulated more like money market mutual funds which face far

Less regulation than banks but it would appear that the regulators are pushing for quite a high level of regulation now this proposal mirrors the stable act which was presented to congress just under a year ago and it would require stable coin operators to obtain full banking licenses now if you’ve been following any of the news on crypto regulation you probably

Saw the story back in september where coinbase was warned by the sec against launching a product that would allow consumers to earn interest on their crypto holdings they were told that this would be considered a security and subject to disclosure and registration requirements under the securities act of 1933 and the securities exchange act of 1934. coinbase decided

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Not to launch the product rather than comply with these regulations now a bank account is not considered a security because securities laws exempt bank accounts the reason that they’re exempted though is that they are subject to banking regulation which is generally much stricter you don’t have to file a prospectus but you do have to meet bank capital requirements

Deal with bank examiners and all the rest so if coinbase backed away at the idea of securities regulation they’ll absolutely hate the idea of certain tokens being regulated as banking products requiring stable coin operators to obtain banking licenses would bring a massive increase in supervision for stable coin issuers who have up until now avoided any real

Regulation at all being regulated like a bank would not just subject them to all sorts of government oversight but it would also give them access to emergency liquidity from regulators in times of stress and customer deposits would fall under fdic insurance up to a certain dollar amount one question that we need to ask though is whether the people currently running

This 130 billion dollar industry would meet the standards required by banking regulators ownership of significant holdings of bank stock requires approval of federal and sometimes state regulators in the united states if you want to own more than 10 percent of a bank u.s regulators need to run a background check to assess your character a felony conviction would

Disqualify an individual from owning over the 10 mark other factors that raise concerns with respect to the purchaser’s competence or integrity would also disqualify them now when tether settled with the new york attorney general in february she said in a statement that tether holdings had been operated by unlicensed and unregulated individuals and entities dealing

In the darkest corners of the financial system so that might give you a bit of a feeling as to how you know their cvs might look to a banking regulator now if we look at the backgrounds of really any of the people involved it strikes me as unlikely that they would be eligible to own significant shares in not to mention run a u.s licensed bank so in the event of

This regulation coming into place there would be a lot of change in the industry reading the report you can see that the regulators are concerned about the rapid growth of the industry the rapid growth of stable coins increases the urgency of this work according to the report it would appear to me that right now the traditional financial system is reasonably

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Insulated from the crypto economy the biggest link between the two is that stable coins claim to be keeping their reserves in commercial paper and other money market instruments this claim is disputed by many people in that space last month zeke foe at bloomberg tried to fact check tedder’s claim that they have about 30 billion dollars invested in commercial

Paper he canvassed wall street traders to see if any had seen tether buying anything and no one had right now a big blow up in the crypto space would likely not reach out into the broader economy but regulators do see this massive growth and most likely want to get involved to protect middle-class americans from possible fraudulent actors in the space as crypto

Investing becomes more mainstream now just to be clear i’m not saying that the space is fraudulent i’m saying that within the space there are certain fraudulent actors and obviously securities regulators are just general financial regulators don’t want to see people putting their savings into things that turn out to be frauds other proposals in the report include

Increasing federal oversight of wallet providers wallet providers are groups that offer products that allow users to hold their crypto tokens and the report also recommends requiring stablecoin issuers to limit their affiliation with commercial entities according to the ft a senior administration official said that the president’s working group was prepared to take

Direct action if congress did not act urgently on these recommendations this could include seeking a financial stability oversight council designation of certain stable coin activities which would allow the appropriate agency to establish risk management standards related to them so a question i’m left with is whether stable coins would exist at all should this

Type of regulation be passed it seems unlikely to me that the current staple coin providers could transition into being banks as i mentioned earlier these products are a lot like numbered bank accounts with no name on them they can move money quickly by sidestepping financial regulations should they become subject to banking regulation it’s not obvious to me what

Value they would add in the marketplace banks are a thing that already exists if you enjoyed this video you should check this one out next have a great day and see you again soon bye

Transcribed from video
Squashing Tether By Patrick BoyleliveBroadcastDetails{isLiveNowfalsestartTimestamp2021-11-05T221700+0000endTimestamp2021-11-05T223031+0000}

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