The year 2021 has enabled the crypto industry to flex market muscles and create new trends while there is an ongoing global adoption. Amidst all these, the market hit a recent capitalization of three trillion dollars. Although this happened over a short while as the crypto market is relatively known not to have stability because of its volatility.
While the charades of highs and lows are happening in the crypto market, both institutional and retail investors are leveraging stablecoins to hold onto their digital assets in the market without losing their grip. They are relatively unaffected by some imminent issues—such as volatility—associated with the market.
Stablecoins are digital currencies associated with fiat currency. And we have witnessed an increase in its demand for use. Between 2020 and 2021, there is a drastic increase in the capitalization of stablecoins. The market exploded by about 500%. However, this significant increase in demand and capitalization received global attention.
And it is noteworthy to mention that regulators seek to establish regulatory policies for their issuers. Yet, some stablecoin issuers support government efforts to make the market operate as a bank despite not being a fan of the regulatory efforts. There is a sentiment that the government’s efforts to regulate the stablecoin industry are a reference for its growth. And this growth can be exponential over time.
Are Regulatory Policies the Solutions?
When referring to regulatory efforts to ensure that stablecoin issuers are in check, the United States is a central reference. But there are enough reasons to ask if supervision is necessary to ensure that the stablecoin market will be sustainable and favor the economy. Some stablecoin issuing companies fully support the federal government’s efforts to supervise how stablecoins are issued.
The scalability of dollar competitiveness is intertwined with how you strategically maximize and supervise blockchains and cryptocurrency. You can compare it to the rise of the internet and how the public maximizes it. As a result, a rigorous partnership between the private and the public sectors is the best bet for individuals to enjoy the benefits of public blockchains across the globe.
Meanwhile, it is essential to mention that the party supporting the federal government’s regulatory efforts established they will keep supporting this effort as long as the consumers and their businesses are safe. Likewise, they recognize that development and innovation can help the economy compete over the edge and bring top national security.
On the other hand, there is a big call about the model of stablecoins used by their creator while building those coins. The regulatory bodies must recognize the kinds of stablecoin models and how they fit in some decentralized spaces. Regulating centralized stablecoins might be appropriate, but decentralized stablecoins are outside of the space and treated as peer-to-peer services.
Should Stablecoins Operate on Their Terms?
There is an assertion that the stablecoin space will always welcome regulations as they operate like banks today. This resulted from the sentiment that the continuous demand for digital currencies and growth can cause a financial meltdown. An instance is how policymakers reacted to Libra, which is now Diem.
If you think the regulatory body will allow non-regulated digital currency to lead the economic finance, you are oblivious of the financial regulatory framework. At the moment, there is a need to establish who controls the regulations but expect stablecoins, their creators, and managers to face strict rules.
On the other hand, stablecoin regulation is not a must for some parties. They likened it to not having a bank’s total capacity while issuing money under a sovereign nation like the US. Ultimately, stablecoins keep going despite different regulations surrounding them.
As a result of this difference, you should expect that the future of crypto exchanges in this regard is split into two. Some are exchanges that want to be regulated and be accountable. At the same time, others won’t want to be regulated. This explains that exchanges will operate with clear rules while others will fit in with a robust market.
Financial institutions will predominantly use the first type of crypto exchange to engage the crypto industry. And the other will be for cross-border transactions while establishing tight currency control measures and rigid peer-to-peer rules.
Ultimately, it is vital to understand the governance for each stablecoin class. A sentiment exists in the marketplace that regulators should allow the free market to run on its own. From there, we can observe the growth of regulated stablecoins and monitor their growth in the global economy and development. This makes us realize that unregulated.
But the primary concern revolves around how stablecoins will confirm different use cases despite the regulatory policies.
The Future Possibilities
The future is bright for stablecoins to become the currencies of the future. And their issuers may likely turn the future banks. But governments are constantly seeking to establish regulatory frameworks that place them in the same position as banks. But governments need to consider innovations that will evolve from the space while developing a charter.
This happens because governments want to understand the concepts of stablecoin and its correlation with the economy. With proper examination, they will know the category of financial systems they fall into and the risks associated with users leveraging stablecoins to stay afloat in the crypto market.
It is not a new run, but it is vital because every government needs to protect its economic power. But we should ask if clamping on stablecoins will help or hurt the financial well-being of the nation. Time is only an indication of what will happen with stablecoins and regulations. Players should hold tight to the rope.