Tag: stablecoin

UK Government Plans to Bring New Rules for Stablecoins, Crypto Staking in Next Six Months

The UK government plans to get new rules governing stablecoins and staking services for cryptoassets approved by lawmakers within the next six months as pressure ratchets up to deliver on specific proposals ahead of an impending general election.

Economic Secretary to the Treasury Bim Afolami, speaking at an industry event hosted by Coinbase in London on Monday, said the government was “pushing very hard” on making legislation happen.

“We’re very clear that we want to get these things done as soon as possible. And I think over the next six months, those things are doable,” Afolami said.

The Treasury first pledged in October to provide more clarity on specific areas of crypto by some point in 2024. That commitment followed an earlier consultation on fiat-backed stablecoins — digital tokens that use reserves of assets to maintain a one-to-one value with a traditional currency like the dollar or pound — and the passing of the larger Financial Services and Markets Act last summer.

Market observers like blockchain analytics firm Elliptic have said they expect to see fiat-backed stablecoins and their issuers regulated under existing payments laws, a move that would provide the UK’s financial regulator with the means to dictate which types of assets can support a stablecoin.

Staking, a process whereby investors lock up their tokens to help keep a blockchain operating in return for a small yield, is expected to receive a new classification that avoids being considered a collective investment, Tom Duff Gordon, vice president for international policy at Coinbase, said in an interview.

Broader proposals that would bring crypto exchanges and other industry providers under existing financial services rules remain in limbo. When asked if that guidance might also become legislation this year, Afolami said he was unable to provide a timeline.

Prime Minister Rishi Sunak first pledged to make the UK a global crypto hub in 2022, seeking to attract more digital-asset businesses and investment to the country. Relatively little regulatory progress has been made since then, even as crypto firms say a lack of clear rules has made it hard for them to operate.

“Short answer is, I don’t know,” Afolami said of a timeline on broader crypto regulation beyond stablecoins and staking. “There’s just a huge amount going on, so I don’t want to commit to that now.”

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PayPal USD Expected to Do Better Than Facebook’s Libra in Stablecoin Market

PayPal‘s stablecoin is likely to succeed where Facebook‘s failed, thanks to the payment giant’s standing in Washington and policymakers’ greater understanding of the issues in the last three years. 

PayPal this month said it was launching PayPal USD, a crypto token pegged to the US dollar, making it the second major global company to launch a stablecoin after Facebook, now Meta Platforms, unveiled Libra in June 2019. 

The move, which comes as PayPal transitions to a new CEO announced last week, seems risky after Facebook’s stablecoin was crushed by political opposition, and as regulators home in on the crypto sector following several meltdowns. 

But PayPal is in a stronger position than Facebook, said former officials, executives and analysts. Policymakers are more familiar with stablecoins, crypto tokens typically pegged to a fiat currency, than they were in 2019. A push to create federal stablecoin regulations has also helped boost their legitimacy in the eyes of lawmakers.

“The world has changed dramatically since Facebook’s Libra project. There was no familiarity with stablecoins whatsoever,” said Christopher Giancarlo, former chair of the US Commodity Futures Trading Commission. 

“Since then the administration, Congress and the Federal Reserve have had time to get their minds around stablecoins and stablecoin regulation and there has been very extensive public relations by the industry, including a lot of lobbying.”

In contrast to Facebook, a social media giant that had been under sustained scrutiny over privacy issues and Russian election interference, PayPal is an established financial operator in Washington. It spent $1.13 million (nearly Rs. 9.40 crore) on federal lobbying last year, according to OpenSecrets, and has been lobbying on cryptocurrencies for several years, records show.

“From a policy perspective, there is a seismic difference between Facebook’s Libra and PayPal’s stablecoin,” said Isaac Boltansky, director of policy research for brokerage BTIG.

“There is still a wall between banking and commerce, so knowing that PayPal is very clearly on one side of that wall should assuage lawmakers.” 

PayPal and Meta declined to comment. 

PayPal USD will be issued by digital trust company Paxos Trust, backed by dollar deposits and US Treasuries, and subject to oversight by the New York State Department of Financial Services. 

PayPal launched a stablecoin because it sees itself as a leader in payments innovation, said one person familiar with the plan, and CEO Dan Schulman has said he envisages it will eventually be used for payments. But PayPal expects the stablecoin will mostly be used by US customers to buy and sell other crypto tokens on its platform, the source said.

Dan Dolev, a senior analyst at Mizuho, said PayPal USD is not a game-changer for PayPal investors. “It’s positive noise,” he added. 

Grand ambitions

To be sure, some policymakers have concerns. Maxine Waters, the top Democrat on the House Financial Services committee, expressed alarm that PayPal is launching a stablecoin without federal oversight to protect consumers and financial stability. But mostly the reaction in Washington has been muted. 

When Facebook unveiled Libra, a stablecoin whose operations were based in Switzerland and which was pegged to a basket of currencies, executives made no secret of their ambitions. They said they wanted to revolutionize the global financial system. 

The project ran in to fierce opposition from policymakers alarmed that Libra could give Facebook too much control over the money system, and infringe on users’ privacy. Caught by surprise, regulators were confused about who should oversee stablecoins. 

Facebook rebranded Libra, scaled it back and moved the project to the United States, in a bid to win US regulatory approval.

According to one former official with direct knowledge of the matter, the decision on approving Libra coincided with the transition to President Joe Biden’s administration in January 2021. While the Fed had been working on the issue for some time, the decision ultimately fell to the new Treasury Secretary Janet Yellen. She wanted time to fully analyze the issues, this person said. 

Tired of waiting, Facebook sold the venture in January 2022.

The White House and the Fed declined to comment. A Treasury spokesperson noted that Yellen has “repeatedly called on Congress to create a comprehensive regulatory framework for stablecoins.”

The Treasury has studied stablecoins over the past two years. After TerraUSD collapsed last year, Yellen said stablecoins did not pose systemic risks. Since then, fears that stablecoins could supplant traditional money have subsided, and the Treasury and Congress have broadly agreed that prudential regulators should oversee them. 

“There’s been an awful lot of work done … to understand what the proportional risk of these things is,” said Jack Fletcher, head of policy and government relations at blockchain company R3.

The Fed this month outlined the process for state banks to transact in stablecoins, while the House Financial Services committee last month advanced a bill giving the Fed more power to oversee stablecoins while preserving state regulators’ authority. 

The committee’s Republican chair, Patrick McHenry, said in a statement on PayPal USD that Congress should move fast to pass that bill, “enabling stablecoins to achieve their full potential.”

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Binance to Swap 750 Million Tether-Tron Token Pairs for Tether-Ether

Binance said in a tweet on Monday it would swap 750 million tether-tron token pairs for tether-ether in an attempt to maintain the stablecoin‘s liquidity.

The move comes amid renewed regulatory scrutiny at the world’s largest cryptocurrency exchange and will help cushion some of the fallout from recent blows, including Binance being sued by the US Securities and Exchange Commission.

The swap, set to start after 12 pm UTC (05:30 pm IST) on Monday, will be held directly with the tether team, the tweet said.

Tether is the largest stablecoin that aims to maintain a 1:1 peg with the US dollar. Tron is the ninth largest cryptocurrency with a $6.3 billion (nearly Rs. 51,900 crore) market value, while ether is the largest after bitcoin, with its $210 billion (nearly Rs. 17,30,500 crore) market capitalization.

Last week, the SEC sued Binance, its CEO and founder Changpeng Zhao, and Binance.US’s operation alleging in 13 charges that Binance had engaged in a “web of deception,” artificially inflated trading volumes and diverted customer funds, and that Binance and Zhao were secretly controlling the U.S. entity while publicly claiming that it was independent.

It will also halt dollar withdrawal channels as early as June 13 after the SEC asked a court to freeze its assets. Binance said on Thursday.

Trading platform Robinhood Markets said the next day that it was delisting three cryptocurrency tokens from its platform that the SEC identified as securities in its lawsuit against Binance.

The SEC charged the Tron Foundation and its founder Justin Sun with fraud in March. A month later the US arm of Binance said it would remove digital asset token tron from its trading platform.

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Tether Says It Will Use 15 Percent of Its Profits to Buy Bitcoin; Aims to Diversify Reserves

Most investments coming to cryptocurrencies are aimed at diversifying the financial portfolios of individual as well as institutional investors. Tether has become the latest company from the Web3 world to have decided to invest some of its business profits into purchasing cryptocurrencies to strengthen and diversify its reserves. The issuer of the largest stablecoin USDT, Tether has decided that it would use 15 percent of its profits to acquire Bitcoin, which is the most expensive crypto asset to exist in the world as of now.

“Starting this month, Tether will regularly allocate up to 15 percent of its net realised operating profits towards purchasing Bitcoin (BTC). Tether anticipates that the current and future BTC holdings in its reserves will not exceed the Shareholder Capital Cushion and will further strengthen and diversify the reserves,” the 2014-founded stablecoin company wrote in an official blog post on May 17.

At the time of writing, BTC was trading at the price point of $27,327 (roughly Rs. 22.5 lakh) as per the crypto price tracker

Tether disclosed its treasury reserve touched an all-time high $2.44 billion (roughly Rs. 20,128 crore) in the first quarter of 2023 between January and March. The company has also showed that its BTC holdings currently stand at $1.5 billion (roughly Rs. 12,375 crore).

“The decision to invest in Bitcoin is underpinned by its strength and potential as an investment asset. Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential. Its limited supply, decentralised nature, and widespread adoption have positioned Bitcoin as a favoured choice among institutional and retail investors alike,” Paolo Ardoino, CTO of Tether, said in a statement.

Tether aims to capitalise on the growth potential of Bitcoin, the price of which spiked as high as $68,000 (roughly Rs. 56 lakh) in 2021.

After the development came into the limelight, the price of Tether shot up with small profits. At the time of writing, USDT was trading at $1 (roughly Rs. 82) true to its nature as a stablecoin.

after years of opaque business practices and questions regarding the state of its reserves, Tether has been working on improving transparency with the public.

In October 2022, Tether eliminated commercial paper from its reserves in order to shore up its treasury reserves and expand the use cases of the blockchain technology in its day-to-day operations.

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PayPal Pauses Work on Stablecoin Amid Increased Crypto Scrutiny by Regulators

PayPal Holdings Inc. is pausing work on its stablecoin as regulators increase scrutiny of cryptocurrencies and a key partner in the project faces a probe by the New York State Department of Financial Services.

PayPal had hoped to debut the stablecoin, which will be backed one for one by the US dollar, in the coming weeks, but will delay that work as it seeks to understand the changing regulatory landscape for such digital assets, according to a person with knowledge of the matter. New York regulators have been investigating Paxos Trust, a cryptocurrency firm PayPal was working with on its stablecoin effort, Bloomberg News reported this week.

“We are exploring a stablecoin,” Amanda Miller, a spokeswoman for PayPal, said in an emailed statement. “If and when we seek to move forward, we will, of course, work closely with relevant regulators.”

Paxos didn’t respond to requests for comment.

Stablecoins are intended to hold a set value, and some are underpinned by a matching reserve of assets such as cash and bonds. Bloomberg News first reported last year that San Jose, California-based PayPal was exploring the launch of its own stablecoin as part of its cryptocurrency push.

New York-based Paxos, issuer of a Binance-branded token that ranks as the third-largest stablecoin, is regulated by the state’s Department of Financial Services. On its website, Paxos stresses its commitment to consumer protection and says that reserves for both of the stablecoins it issues are held wholly in cash and US Treasuries. The company also issues its own stablecoin called Pax Dollar.

PayPal announced last year that the Department of Financial Services had granted the firm a “BitLicense,” which governs businesses working with virtual currencies. PayPal said at that time that it was the first company to convert a conditional BitLicense into a full one.

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Silvergate Capital Delays Plans to Launch Its Own US Dollar-Pegged Stablecoin

Silvergate Capital, a crypto bank holding company, has decided to delay the launch of its long-awaited stablecoin, CEO Alan Lane said during the company’s third-quarter earnings call on Tuesday. California-based Silvergate Capital, the parent of Silvergate Bank, announced it was working on its own payments-focused stablecoin in January after acquiring related intellectual property, infrastructure and tools from blockchain payment network developer Diem Group. The delay is not due to technical issues, Lane said during the call, underscoring that the technology was ready when Silvergate acquired it from Diem.

“Unfortunately, we no longer expect that to happen this year,” Lane said. The technology is ready to go but the firm is “working with regulators and policymakers and making sure we get this right,” Lane elaborated. “We still feel very strongly that we are in the best position of any other bank out there to launch a regulatory-compliant, safe and sound, tokenised dollar on the blockchain,” he added.

Silvergate Bank is one of the largest crypto banks currently in the market. At the beginning of 2022, Silvergate Capital acquired the crypto technology from Diem, the stablecoin project of Meta platforms (formerly Facebook) launched earlier in 2019.

Silvergate has been offering loans to several crypto firms while accepting Bitcoin as collateral. Earlier this year, business intelligence firm MicroStrategy took a major loan from Silvergate while putting its Bitcoins as collateral.

MicroStrategy said that they will use these funds to buy more Bitcoins. This was also the largest loan secured by any Bitcoin holding company. Company CEO Alan Lane stated that he is still bullish about the Bitcoin lending business and expects it to grow with time.

However, with the broader market condition, Lane remains practical and expects the pain in the market to continue for a while. “Over the coming quarters, the crypto industry may still pose challenges for some exchanges and crypto funds. However, at some point, all that will be over, and then we will just be waiting for what is the next catalyst,” he said in an interview with CoinDesk in July.

Cryptocurrency is an unregulated digital currency, not a legal tender and subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, trading advice or any other advice or recommendation of any sort offered or endorsed by NDTV. NDTV shall not be responsible for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained in the article.

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UN Development Body UNCTAD Believes Banks Should Be Banned From Holding Crypto

The United Nation’s development arm, UNCTAD, believes that banks should be banned from holding crypto while suggesting that developing countries should implement extensive restrictions on the usage of cryptocurrencies, given the risks they pose to tax collection. The UN Conference on Trade and Development (UNCTAD), in a series of reports published on Thursday, warns that the rising use of crypto for domestic payments and by migrant workers sending funds back home poses a challenge to states’ authority in monetary matters, which may lead to “leakage” of development funds.

The agency suggests a volley of regulatory curbs that we’ve already seen a number of countries take, although not all at once. These include imposing higher taxes on crypto transactions, requiring exchanges and wallets to register with regulators, and curbing or forbidding crypto ads.

“The benefits that cryptocurrencies may bring to some individuals and financial institutions are overshadowed by the risks and costs they entail, particularly in developing countries,” UNCTAD said, citing risks such as tax evasion and losses from price swings that might need to be bailed out by central banks.

As highlighted by a CoinDesk report, the document advises countries to “ban regulated financial institutions from holding stablecoins and cryptocurrencies or offering related products to clients.”

By virtue, stablecoins are essentially cryptocurrencies that aim to maintain their value with respect to an established fiat currency such as the US dollar – but as seen in the recent collapse of terraUSD, they don’t always manage to do so.

Figures cited by UNCTAD show crypto is particularly popular in Russia, Ukraine and Venezuela — three countries affected by sanctions, war and hyperinflation. As of November 2021, 41 developing countries had either prohibited banks from dealing in crypto or prevented exchanges from offering crypto to retail investors, and nine have banned crypto outright, the report said.

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FTX Has ‘A Few Billion’ to Support Industry, Claims Head Sam Bankman-Fried

Sam Bankman-Fried, head of one of the largest cryptocurrency exchanges, FTX, said he and his company still have a “few billion” on hand to shore up struggling firms that could further destabilise the digital asset industry, but that the worst of the liquidity crunch has likely passed.

Bankman-Fried, 30, who is from California but lives in the Bahamas where FTX is based, has become crypto‘s white knight in recent weeks, throwing lifelines to digital asset platforms which have faltered as cryptocurrencies prices have cratered. Bitcoin is down around 70 percent from its all-time November high of nearly $69,000 (nearly Rs. 50 lakh).

“We’re starting to get a few more companies reaching out to us,” Bankman-Fried said in an interview. Those firms are generally not in dire situations, though some smaller crypto exchanges may still fail, he said, adding that the industry has moved beyond “other big shoes that have to drop.”

Bankman-Fried’s crypto-trading firm, Alameda Research, gave crypto-lender Voyager Digital a $200 million (nearly Rs. 1,600 crore) cash and stablecoin revolving credit facility, and a facility of Bitcoin, as the company faced losses from exposure to crypto hedge fund Three Arrows Capital. On Wednesday, Voyager filed for bankruptcy.

Also in June, FTX handed US cryptocurrency lender BlockFi a $250 million (nearly Rs. 2,000 crore) revolving credit facility and on Friday announced a deal giving FTX the right to purchase it based on certain performance triggers.

The goal of the bailouts was to protect customer assets and stop contagion from ricocheting through the system, Bankman-Fried said.

“Having trust with consumers that things will work as advertised is incredibly important and if broken is incredibly hard to get back,” he said.

In January, FTX unveiled FTX Ventures, a $2 billion (nearly Rs. 1,58,200 crore) venture capital fund focused on digital asset investments, which it has since drawn on to help bail out firms that are lacking liquidity, but not assets.

“It does get increasingly expensive with each one of these,” Bankman-Fried said, adding that the firm still had enough cash on hand to do a $2 billion deal if necessary.

“If all that mattered was one single event, we could get above a couple billion,” he said, stressing that isn’t his preference.

On one or two occasions, Bankman-Fried, who made billions arbitraging cryptocurrency prices in Asia beginning in 2017, said he has used his own cash to backstop failing crypto companies when it didn’t make sense for FTX to do so.

“FTX has shareholders and we have a duty to do reasonable things by them and I certainly feel more comfortable incinerating my own money,” he said.

Bankman-Fried also in May revealed he had personally taken a 7.6 percent stake in Robinhood Markets, capitalising on the trading app’s weakened share price.

Forbes pegged Bankman-Fried’s net worth this year at around $24 billion (nearly Rs. 1.9 lakh crore), but Bloomberg’s Billionaires Index in May said that figure has been cut in half due to the crypto crash.

CRYPTO WINTER

As the US Federal Reserve has begun aggressively hiking rates to combat hyperinflation, investors have fled the crypto markets.

The crash in cryptocurrency prices, referred to as “crypto winter,” may have bottomed, as prices have stabilised, but it will largely depend on the macro-economic situation, said Bankman-Fried, a 2014 graduate of the Massachusetts Institute of Technology.

“I don’t think it’s an existential threat to the industry, but I do think it is a fair bit worse that I would have anticipated,” Bankman-Fried said.

Bankman-Fried started his career in finance at quantitative trading firm Jane Street, then founded crypto trading firm Alameda Research and in 2019 set up FTX, which was valued in January at $32 billion (nearly Rs. 2.5 lakh crore).

He has said he plans to give away 99 percent of his wealth, and that he could spend up to $100 million (nearly Rs. 800 crore) supporting candidates in the 2024 election cycle, focusing on issues like pandemic prevention and bipartisanship.

While rival crypto exchanges face layoffs after earlier hiring sprees, FTX has around 300 employees, and Crunchbase pegs Alameda’s staff at fewer than 50.

“Every quarter this year, I expect our workforce to be bigger than the previous quarter, but we’re trying not to grow insanely quickly,” he said.

© Thomson Reuters 2022

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Tether Announces to Reduce Commercial Paper Holdings by July End Amid Crypto Gloom

Tether, the world’s largest stablecoin, said on Friday it had cut its commercial paper holdings by around 58 percent as part of an earlier commitment to reduce its exposure to riskier assets.

Stablecoins — a variety of cryptocurrencies designed to keep a steady value — are in sharp focus after the collapse of the TerraUSD token in May.

Usually underpinned by reserves of assets such as the US dollar, gold and government debt, stablecoins are widely used in cryptocurrency trading and Tether is the predominant medium for moving funds between crypto or into regular cash.

Tether’s reserves consist of US Treasury bonds and commercial paper, which refers to short-term debt issued by companies.

The token has $8.4 billion (nearly Rs. 66,300 crore) of commercial paper and plans to reduce its holdings to $3.5 billion (nearly Rs. 27,700 crore) by the end of July, according to a statement.

The company aims to reduce its commercial paper holdings to zero, in a bid to address concerns about the quality of assets underpinning its token amid the crypto market meltdown.

Tether had slid below its 1:1 peg to the dollar in May before recovering, a fall that had sent shockwaves across the sector.

The statement also mentioned that this cut is a part of a larger strategy to ensure that Tether has a diversified portfolio with limits to exposure on individual issuers or assets. By taking the step, the company is fulfilling its commitment to reduce its commercial paper investments. It also validates the business, as part of its ongoing push towards an increased transparency for the stablecoin industry. This will continue to be reflected in future assurance opinions in the coming months.

© Thomson Reuters 2022

 

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