Tag Archives: regulation

The Diverging Paths of Stablecoin Regulation: A Tale of Two Continents

The Diverging Paths of Stablecoin Regulation: A Tale of Two Continents

The regulatory landscape for stablecoins is undergoing a profound transformation, with the United States and Europe adopting markedly different approaches. On one hand, the U.S. Securities and Exchange Commission (SEC) has provided much-needed clarity for fully collateralized stablecoins like USDT (Tether) and USDC (USD Coin). On the other hand, Europe’s Markets in Crypto-Assets (MiCA) regulation imposes stringent restrictions that could stifle liquidity and innovation in the region. This divergence raises critical questions about the future of stablecoins and their role in the global financial system.

The U.S. Approach

The SEC’s recent announcement that fully collateralized stablecoins are not securities represents a pivotal moment for the crypto industry. By defining “covered stablecoins” as those backed 1:1 by fiat reserves or low-risk, highly liquid assets, the SEC has removed significant regulatory uncertainty. Issuers of these stablecoins are not required to register their minting or redemption activities, provided they adhere to strict transparency and reserve requirements.

This decision aligns with broader U.S. policy objectives, including maintaining the dollar’s dominance as the global reserve currency. Stablecoins like USDT and USDC, which collectively account for over $200 billion in market supply, are increasingly seen as critical infrastructure for the digital economy. Their stability and liquidity make them indispensable tools for institutional trading, decentralized finance (DeFi), and cross-border payments.

The SEC’s stance is complemented by legislative efforts such as the STABLE Act and the GENIUS Act, which aim to establish a comprehensive federal framework for stablecoins. These bills emphasize consumer protection, reserve transparency, and the segregation of assets, while also encouraging innovation. The U.S. Treasury has even highlighted stablecoins as a strategic asset to extend dollar dominance, underscoring their geopolitical significance.

Europe’s Approach

In stark contrast, Europe’s MiCA regulation imposes a series of restrictions that could cripple the stablecoin market. Key provisions include a ban on offering interest on stablecoins, a daily issuance cap of €200 million, and a requirement that 60% of reserves be held in EU-based banks. Additionally, issuers must obtain full licensing, undergo regular audits, and establish local legal entities within the EU.

These measures are ostensibly designed to protect consumers and ensure financial stability. However, they fail to account for the realities of the stablecoin market, where over 90% of usage comes from professional trading firms rather than retail payments. These firms require 24/7 liquidity, seamless issuance and redemption, and yield opportunities—needs that MiCA’s framework fundamentally disrupts.

The requirement to hold a majority of reserves in EU banks is particularly problematic. European banks generally offer lower yields compared to U.S. Treasuries, which are the preferred reserve asset for issuers like Tether. Tether, for instance, holds only 0.06% of its reserves in bank deposits, with the bulk invested in U.S. Treasuries, generating over $6 billion annually in passive income. Complying with MiCA would force Tether to abandon this profitable model, making it unlikely to seek compliance.

The Implications for Liquidity and Innovation

The contrasting regulatory approaches have profound implications for liquidity and innovation in the stablecoin market. In the U.S., the SEC’s clarity is expected to boost market confidence and attract institutional adoption. Major financial institutions like Bank of America and Visa are already exploring stablecoin integration, signalling a potential surge in demand.

In Europe, however, MiCA’s restrictions could drive issuers and traders to more favourable jurisdictions. The daily issuance cap alone could create bottlenecks, while the ban on interest eliminates a key incentive for holding stablecoins. These limitations are likely to deter professional trading firms, which are the primary drivers of stablecoin liquidity. As a result, Europe risks falling behind in the global race to lead the digital asset economy.

Why Tether Won’t Comply

In my opinion, Tether’s decision not to comply with MiCA is both strategic and pragmatic. The company’s business model relies on maximizing returns from its reserve assets, primarily U.S. Treasuries. Complying with MiCA would not only reduce these returns but also impose additional operational and regulatory burdens. Given its dominant market position and the global nature of its user base, Tether has little incentive to conform to a framework that undermines its profitability.

Moreover, Tether’s non-compliance is unlikely to significantly impact its market share. The U.S. and other crypto-friendly jurisdictions offer ample opportunities for growth, and the global demand for stablecoins shows no signs of waning. By focusing on markets with favorable regulations, Tether can continue to thrive without the constraints of MiCA.

The Broader Geopolitical Context

The regulatory divergence between the U.S. and Europe reflects broader geopolitical dynamics. The U.S. is leveraging stablecoins to reinforce the dollar’s dominance, while Europe’s approach appears more cautious, if not outright protectionist. This caution could be attributed to concerns about financial stability, but it also risks ceding ground to the U.S. in the rapidly evolving digital asset space.

China’s push for a digital yuan adds another layer of complexity. As global powers vie for influence in the digital economy, stablecoins backed by the dollar could serve as a counterweight to state-controlled digital currencies. By fostering a favourable regulatory environment, the U.S. is positioning itself as a leader in this new frontier, while Europe’s restrictive policies could leave it sidelined.

A Tale of Two Futures

The SEC’s decision to exempt fully collateralized stablecoins from securities classification marks a pivotal moment for the crypto industry. By providing clarity and reducing regulatory barriers, the U.S. is setting the stage for stablecoins to become a cornerstone of the digital economy. In contrast, Europe’s MiCA regulation risks stifling innovation and liquidity, potentially relegating the region to a secondary role in the global stablecoin market.

As the world moves toward a digital financial system, the stakes could not be higher. Stablecoins are not just a tool for traders; they are a strategic asset with implications for monetary policy, financial inclusion, and global economic power.

The U.S. has recognized this and is acting accordingly. Europe, however, must reconsider its approach if it hopes to remain competitive in the digital age. The choice is clear: embrace innovation or risk being left behind.

 

Source: https://intpolicydigest.org/the-diverging-paths-of-stablecoin-regulation-a-tale-of-two-continents/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
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The Future of Crypto Regulation With Trump: A Critical Turning Point for the Digital Asset Industry

The Future of Crypto Regulation With Trump: A Critical Turning Point for the Digital Asset Industry

The cryptocurrency industry has always been a space of tension between innovation and regulation. For years, the Securities and Exchange Commission (SEC) has been at the center of this tug-of-war, with its leadership shaping the trajectory of the digital asset market. Under Gary Gensler’s tenure as SEC chair, the agency adopted a hardline approach to enforcing securities laws, targeting both token issuers and intermediaries. Now, as Gensler prepares to step down, the crypto world is bracing for what could be a pivotal shift. A pro-Trump Congress, coupled with a more favorable regulatory outlook, could usher in a new era for the industry—one that prioritizes clarity, growth, and innovation over punitive enforcement.

This potential shift raises an important question: Can the United States finally strike the right balance between regulation and innovation? If so, the crypto market could see unprecedented growth, with clearer rules encouraging mainstream adoption and investment. But to understand where we’re headed, we must first examine where we’ve been.

Gensler’s Tenure: A Double-Edged Sword

Gary Gensler’s time at the SEC has been nothing short of controversial. When he took the helm, many in the crypto community were optimistic. After all, he wasn’t just another bureaucrat—he was a former MIT professor who had taught courses on blockchain technology. His deep understanding of the space seemed to promise a more informed and balanced approach to regulation. But as his tenure unfolded, it became clear that his vision for the industry was far more rigid than many had hoped.

Under Gensler, the SEC brought roughly 100 crypto-related enforcement cases, surpassing the 80 cases initiated by his predecessor, Jay Clayton. While Clayton’s focus was primarily on token issuers—companies that launched cryptocurrencies the SEC deemed to be unregistered securities—Gensler expanded the scope. He zeroed in on market intermediaries, such as exchanges and lending platforms, accusing them of skirting securities laws by failing to register and disclose their operations. This shift in focus sent shockwaves through the industry, with major players like Coinbase and Binance finding themselves in the SEC’s crosshairs.

Perhaps Gensler’s most contentious stance has been his assertion that most cryptocurrencies, including XRP, are unregistered securities. This position has led to high-profile legal battles, such as the SEC’s lawsuit against Ripple Labs, which has become a litmus test for the agency’s regulatory authority. He has repeatedly warned that the majority of crypto projects are destined to fail, citing regulatory noncompliance and a lack of sustainable business models. While his defenders argue that these actions are necessary to protect investors, critics contend that his heavy-handed approach has stifled innovation and driven companies offshore.

A Pro-Crypto Congress: A Glimmer of Hope?

As Gensler exits the stage, the prospect of a pro-crypto Congress under a Trump administration offers a potential lifeline for the industry. Former President Donald Trump, who was once openly skeptical of cryptocurrencies, has recently softened his stance. His more recent pledges suggest a willingness to embrace the digital asset market, signaling a possible alignment between the executive and legislative branches on the need for a balanced regulatory framework.

One of the most promising developments is the U.S. Senate’s decision to establish a cryptocurrency subcommittee, with Senator Cynthia Lummis at the helm. Lummis has long been a champion of Bitcoin and blockchain technology, advocating for clear and fair regulations that encourage innovation while safeguarding consumers. Her leadership could be instrumental in crafting policies that address the unique challenges of the crypto market without stifling its growth.

A pro-crypto Congress is likely to prioritize the development of a comprehensive regulatory framework, something the industry has been clamoring for. This could include defining the legal status of cryptocurrencies, establishing clear guidelines for token issuance, and creating a regulatory sandbox for blockchain startups to experiment and innovate. Such measures would not only reduce the regulatory uncertainty that has plagued the industry but also attract more institutional investors, driving mainstream adoption and increasing the value of digital assets.

The Economic Case for Crypto-Friendly Policies

The economic potential of the cryptocurrency market is staggering. According to an article on Forbes, the global blockchain market is projected to grow from $7.18 billion in 2022 to $163.83 billion by 2029, with a compound annual growth rate (CAGR) of 56.3%. The United States, as a global financial leader, has a unique opportunity to capitalize on this growth by fostering a regulatory environment that supports innovation and investment in blockchain technology.

Clearer regulations could also help address some of the industry’s most pressing challenges, such as fraud and market manipulation. While the crypto market has made strides in reducing illicit activity, I think it is still not good enough. Robust regulatory oversight, including Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, could help build trust in the market and protect investors from bad actors.

Beyond addressing these challenges, a well-regulated crypto market could serve as a powerful engine for economic growth. Blockchain technology has applications far beyond cryptocurrencies, with potential use cases in supply chain management, healthcare, and even government services. PwC estimates that blockchain could generate $1.76 trillion in business value by 2030. By embracing this technology, the United States can position itself as a global leader in the digital economy, ensuring its competitiveness in the years to come.

The Dangers of Overregulation

While the case for crypto-friendly regulations is compelling, it’s crucial to avoid the pitfalls of overregulation. Excessive or poorly designed rules could stifle innovation and drive companies to relocate to more favorable jurisdictions, a phenomenon known as “regulatory arbitrage.” This is already happening to some extent. For example, Binance, the world’s largest cryptocurrency exchange, has faced regulatory challenges in multiple countries, including the United States. In response, the company has adopted a decentralized structure, with no official headquarters, to minimize its exposure to regulatory risks.

This trend is concerning because it undermines accountability and consumer protection. If the United States wants to remain a hub for innovation, it must strike a balance between enforcing compliance and fostering growth. Regulators should work collaboratively with industry stakeholders to develop policies that address their concerns while ensuring adherence to existing laws. Public-private partnerships, industry roundtables, and open consultations on proposed regulations could go a long way in building trust and creating a framework that works for everyone.

A Personal Perspective: Pragmatism Is Key

As someone who has closely followed the evolution of the cryptocurrency market, I believe the current regulatory landscape is unsustainable. The lack of clarity and consistency in the SEC’s approach has created an environment of uncertainty that hinders innovation and deters investment. While Gary Gensler’s efforts to enforce securities laws are well-intentioned, his heavy-handed tactics have often done more harm than good, alienating the very companies that have the potential to drive the industry forward.

The transition to a pro-crypto Congress represents a unique opportunity to reset the regulatory agenda. By adopting a pragmatic approach, lawmakers can address the legitimate concerns raised by Gensler while creating an environment that encourages growth and innovation. This includes recognizing the unique characteristics of cryptocurrencies and blockchain technology, which often don’t fit neatly into existing regulatory categories.

For instance, the debate over whether cryptocurrencies should be classified as securities, commodities, or something else entirely has been a major source of contention. A more nuanced approach—such as creating a new regulatory category for digital assets—could help resolve this issue and provide much-needed clarity for the industry.

Conclusion: A New Chapter for Crypto?

The cryptocurrency market is at a crossroads. With Gary Gensler stepping down and Trump leading a possibility more pro-crypto Congress on the horizon, the industry has a chance to turn the page and enter a new era. Clearer, more effective regulations could unlock the full potential of blockchain technology, driving innovation, investment, and economic growth. But achieving this vision will require a collaborative effort from regulators, industry leaders, and policymakers.

The stakes are high, but the rewards are even greater. If the United States can strike the right balance, it could cement its position as a global leader in the digital economy. The time to act is now, and the opportunity to shape the future of crypto is one we cannot afford to miss.

 

Source: https://www.securities.io/the-future-of-crypto-regulation-with-trump-a-critical-turning-point-for-the-digital-asset-industry/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
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What Singapore should do for Token Regulation: My Suggestions for Proposed DTSPs Framework

What Singapore should do for Token Regulation: My Suggestions for Proposed DTSPs Framework
  • In the first half of 2024, Singapore’s cryptocurrency and blockchain sectors grew by 22%, reaching over US$200 million.
  • The MAS proposed a risk-based regulatory approach to enhance anti-money laundering and counter-financing of terrorism.

Singapore has consistently positioned itself as a forward-thinking jurisdiction, balancing innovation with robust regulatory oversight. As a fellow Singaporean, I am very proud of its future planning.

The Monetary Authority of Singapore (MAS) is seeking submissions for the Consultation Paper on the proposed regulatory approach for Digital Token Service Providers (DTSPs) under the Financial Services and Markets Act 2022.

Instead of replying to the submission directly, I will try to share my point of view openly here, offering insights, potential plans, and timelines for implementation. Before I start, I am sharing this in my personal capacity: I do not represent any self-claimed digital assets expert groups, associations, or schools.

License Application and Fee Structures

In the first half of 2024, Singapore’s fintech market saw its cryptocurrency and blockchain sectors achieve US$211.90 million across 72 deals, marking a 22% increase from US$166.30 million over 38 deals in the second half of 2023.

Singapore has been actively working on strengthening risk management frameworks for digital asset tokenization and has recently launched an initiative to expand asset tokenization within financial services.

The proposed license application processes and fee structures are crucial elements that will shape the DTSP landscape in Singapore. From my perspective, MAS should consider implementing a tiered approach to both timelines and fees, reflecting the diversity of DTSPs in terms of size, complexity, and risk profile.

For timelines, I propose a three-tier system:

Fast-track (60 days): For small, low-risk DTSPs with straightforward business models.

Standard (90 days): For medium-sized DTSPs or those with moderately complex operations.

Extended (120+ days): For large, complex DTSPs or those proposing novel business models.

This tiered approach would allow MAS to allocate resources efficiently while ensuring thorough vetting of more complex applications. The fee structures can follow a similar tiered system based on the DTSP’s annual revenue or transaction volume could be implemented.

Minimum Financial Requirements

The proposed minimum financial requirements are a critical safeguard against potential market disruptions and consumer losses. Based on my analysis, I believe a risk-based approach to setting these requirements is more feasible. This could involve:

Base Capital Requirement: A minimum base capital for all DTSPs, regardless of size or services offered.

Risk-Weighted Capital Requirement: Additional capital requirements based on the DTSP’s types of services offered, transaction volumes, and risk profile.

Liquidity Requirement: A minimum liquidity ratio to ensure DTSPs can meet short-term obligations.

Specifically, providers with capital ratios above 15% were 30% less likely to face operational disruptions during periods of extreme market stress. I propose that MAS consider setting the base capital requirement at SGD 250,000, with additional risk-weighted requirements that could increase this amount up to SGD 5 million for the largest and most complex DTSPs.

Audit Requirements

The proposed duties of CEOs, directors, and partners, along with audit requirements, are fundamental to ensuring good governance and accountability in the DTSP sector. The following enhancement is recommended for consideration:

Mandatory Training: Annual training programs for CEOs and directors on regulatory compliance, risk management, and emerging trends in digital assets.

Risk Committee: DTSPs above a certain size must establish a dedicated risk committee at the board level.

Independent Directors: Mandating a minimum number of independent directors based on the DTSP’s size and complexity.

Audit Frequency: Annual external audits for all DTSPs, with additional quarterly internal audits for larger providers.

Regulators are increasingly leveraging technological solutions to enhance their supervisory functions and manage vast amounts of data. Consequently, firms must engage more frequently with regulators regarding fintech and regtech developments.

Fintech companies that implement robust governance structures and conduct regular audits are indeed less likely to experience compliance breaches.

AML/CFT Measures

The measures proposed in parts 5–8 of the consultation paper, particularly those related to Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT), are crucial for maintaining the integrity of Singapore’s financial system. I propose the following enhancements:

Risk-Based Approach: Implement a tiered KYC/AML approach based on transaction volumes and risk profiles.

Technology Integration: Encourage the use of AI and machine learning for transaction monitoring and suspicious activity detection.

Regulatory Technology (RegTech) Sandbox: Establish a sandbox environment for DTSPs to test innovative compliance solutions.

For existing customers onboarded prior to licensing, I suggest a phased approach:

Phase 1 (0–6 months): Risk assessment of existing customer base

Phase 2 (6–12 months): Enhanced due diligence for high-risk customers

Phase 3 (12–18 months): Full compliance with new requirements for all customers

Correspondent Account Services

The proposed requirements for Correspondent Account Services and information sharing for law enforcement purposes are essential components of a comprehensive regulatory framework. Perhaps the following would help:

Standardized Data Format: Develop a standardized data format for information sharing across the industry.

Blockchain Analytics: Encourage the use of blockchain analytics tools to enhance transaction traceability.

Secure Information Sharing Platform: Establish a secure, centralized platform for information sharing between DTSPs and law enforcement agencies.

Blockchain analytics tools have been instrumental in recovering stolen or illicitly obtained digital assets worldwide. They allow law enforcement agencies to trace and identify suspicious cryptocurrency transactions on the blockchain, leading to asset recovery efforts.

Technology Risk Management

The draft notices FSM-N28 to FSM-N33 cover critical aspects of DTSP operations, including technology risk management, cyber hygiene, and conduct. Based on my observations, I propose the following:

Continuous Monitoring: Implement real-time monitoring systems for cyber threats and operational risks.

Incident Response Drills: Mandate regular incident response drills and simulations.

Third-Party Risk Management: Establish clear guidelines for managing risks associated with third-party service providers.

Consumer Education: Require DTSPs to allocate resources for ongoing consumer education initiatives.

Regarding operating hours, perhaps MAS can consider a flexible approach that allows for 24/7 operations while ensuring adequate risk management and customer support. This could involve:

Core operating hours (e.g., 9 AM to 5 PM SGT) with full support services

Extended hours with automated systems and on-call support

Scheduled maintenance windows during low-volume periods

Timeline for Implementation:

To ensure a smooth transition to the new regulatory framework, I propose the following timeline:

Month 0–3: Publication of final regulations and guidelines

Month 3–6: Industry consultation and feedback period

Month 6–9: Finalization of technical specifications and reporting formats

Month 9–12: DTSP preparation and system upgrades

Month 12–18: Phased implementation of new requirements

Month 18–24: Full compliance deadline for all DTSPs

This timeline allows for a gradual implementation, giving DTSPs sufficient time to adapt their systems and processes while ensuring that the regulatory framework is fully operational within two years.

With careful implementation and continuous refinement, this regulatory framework has the potential to cement Singapore’s position as a global leader in digital asset regulation, attracting innovative businesses while safeguarding the interests of consumers and the broader financial system.

 

Source: https://www.financemagnates.com/cryptocurrency/what-singapore-should-do-for-token-regulation-my-suggestions-for-proposed-dtsps-framework/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j