New legislation in the United States could pose a danger to the Stablecoins and the industry as a whole.
This new law could put up to $1 trillion worth of transactions at risk.
Regulatory crackdowns such as this one could lead to an exodus of Stablecoin issuers from the U.S. coasts.
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The ecosystem of decentralised finance is developing rapidly and is beginning to attract the attention of regulatory bodies. A new law in the United States could endanger Stablecoins and the entire sector.
Stablecoins are the backbone of DeFi, providing the lion’s share of liquidity in the ever-increasing number of yield and lending incentives. According to a new study by IntoTheBlock, new regulatory measures could jeopardise $1 trillion worth of transactions in the nascent financial sector.
Demand and issuance of stable coins surged in 2020. Tether alone has increased its market capitalization and supply by nearly 400% since January. There is now more than $20 billion in USDT in circulation, and regulators are beginning to worry.
Tether USDT Bitcoin
What is the Stable Act
A new US Congressional bill called the „Stable Act“ proposes strict regulations for issuers of stable currency such as Tether. The most important proposal is that all stablecoin issuers must have a bank charter or license, which is not currently the case.
As Defiant’s latest newsletter indicates, such a crackdown could pose a significant threat to the DeFi industry, which is largely driven by stablecoins such as the USDT, USDC and DAI.
The Stable Act also provides for the introduction of a reporting and approval requirement by the Federal Reserve at least six months prior to any new issuance of stablecoin. Ongoing auditing will also be a new requirement if the Bill is passed. Another proposed rule is the insurance or storage of Stablecoin reserves directly to the Federal Reserve, facilitating on-demand conversion into USD.
If the Stable Act is passed, it will have a huge impact on the entire crypto industry.
Multi-billion dollar transactions
According to IntoTheBlock analyst Lucas Outumuro, who wrote the article, transactions involving stablecoins could be illegal if these strict regulations come into force.
In 2020, the cumulative amount of transactions to date between the USDT, USDC and DAI is more than $1.04 trillion, all of which would be considered illegal if the Stable Act were passed at that time.
He added that centralized stablecoins such as the USDT and USDC, which now have more than $3.3 billion in circulation, could apply for a bank charter and meet the strict new requirements, but decentralized assets such as the DAI would be in trouble.
In addition, the bill also targets stablecoin validation software, which is considered illegal if it is not registered as a chartered bank. This would put Ethereum in the line of fire since the majority of current stablecoins are based on the ERC-20 standard.
The European Central Bank has also warned about Stablecoins and a major regulatory measure such as this could lead to an exodus of Stablecoin issuers from the United States.