Stablecoins Vulnerable to Regulatory Uncertainty: European Central Bank

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By Helen Partz

Stablecoins with a clear governance framework may be hampered by the uncertainty of the lack of regulation, according to the European Central Bank (ECB).

Four major types of stablecoins outlined

On Aug. 29, the ECB released a new paper devoted to stablecoins, which it describes as digital units of value that are not a form of any specific currency but rather rely on a set of stabilization tools in order to minimize fluctuations in their price.

The ECB’s paper is called “In search for stability in crypto-assets: are stablecoins the solution?” and proposes a classification of stablecoins based on different key concepts used to keep their value stable. Specifically, the ECB outlined four major types of stablecoins including those specified as tokenized funds, off-chain collateralized stablecoins, on-chain collateralized stablecoins and algorithmic stablecoins.

54 stablecoins totally $4.8 billion in July 2019

According to the ECB’s data, there are at least 54 existing stablecoin projects, with 24 of them being operational. The total market capitalization of stablecoin initiatives almost tripled from €1.5 billion ($1.7 billion) in January 2018 to over €4.3 billion ($4.8 billion) in July 2019, while the average volume of stablecoin transactions was €13.5 billion per month within the period between January and July 2019.

Tokenized funds are the most popular stablecoin type, accounting for almost 97% of the monthly volume of all other stablecoin initiatives, according to the ECB.

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Classification of 54 active stablecoin initiatives. Source: European Central Bank

Uncertainties in the field pose major risks

In the report, the ECB emphasized existing uncertainties in governance and regulatory treatment of stablecoin projects. Specifically, the bank wrote that stablecoin adoption may require improvements to its governance, including the processes of updating the smart contracts at the core of the project. 

On the other hand, stablecoins with a clear governance framework are also at risk as far as they may “nevertheless be hampered by the uncertainty relating to the lack of regulatory scrutiny and recognition,” which is specifically relevant in the event that financial institutions use the same tech for recording of traditional assets. In that situation, stablecoins would be redundant in the use of DLT outside crypto-asset markets, the bank concluded.

In July 2019, an official at the ECB raised concerns over stablecoins use, claiming that there is no reason to be alarmed but there is reason to be vigilant with stablecoins.

Via Cointelegraph.com

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President Donald Trump slammed the European Union (EU) during a speech to his supporters in North Dakota on Wednesday. Speaking to thousands of people at Scheels Arena in Fargo, N.D. the President said, “We love the countries of the European Union. But the European Union, of course, was set up to take advantage of the United States. And you know what, we can’t let that happen.The Washington Post columnist Josh Rogin predictably seized on the remarks in the context of trans-Atlantic trade and an alleged conversation between Trump and French President Emanuel Macron to accuse POTUS of seeking to destroy the EU (some would reply ‘if only’). Josh Rogin’s column and CNN appearance is typical “OMG everything Trump does benefits Russia!” neocon hysteria, ignoring the agency of Europeans in determining whether or not the EU will survive and conflating the Franco-German core with ‘Europe’ as a whole.

Nonetheless, Trump has praised former UKIP leader Nigel Farage as “Mr. Brexit”. And there is no doubt Trump sees the EU not as a compliment to American foreign policy but as a competitor, with the bloc running a large trade surplus to the U.S. largely thanks to German exports. What the CNN/MSNBC globalist mouthpiece media ignore is that it will be Europeans, not Americans, who ultimately decide that the Brussels bureaucracy is failing to meet the needs of their people. Naturally the CNN/MSNBC talking heads captive to their #TrumpRussia narratives don’t even mention that, after tearing up the JCPOA with Iran, the Administration is trying to foist expensive US liquefied natural gas (LNG) imports on Europe — and neither policy is supported by the Kremlin.

In our view Europe must return to the original aim of many Gaullist supporters of economic, but not political integration — a free trade zone with relaxed internal borders but strong external border protections, a Continent of sovereign nations at peace, neither inundated by refugee flows nor engaged in a second Cold War with Russia. If Trump accelerates that process by inspiring populist politicians on the Continent like the ‘Austro-Hungarian’, Polish and especially Italian governments, so be it. — JWS

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