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Kriptoteka > Market > Ethereum > SEC Chair Gensler Warns of Potential Action on Stablecoins
Ethereum

SEC Chair Gensler Warns of Potential Action on Stablecoins

marcel.mihalic@gmail.com
Last updated: October 3, 2024 5:46 am
By marcel.mihalic@gmail.com 10 Min Read
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Gary Gensler, the Chair of the Securities and Exchange Commission (SEC), stated that cryptocurrencies whose values are tied to traditional securities may fall under the jurisdiction of securities laws.

In a discussion with the American Bar Association, Gensler emphasized that stablecoins and other tokens backed by securities are not exempt from the SEC’s forthcoming regulations. Any products categorized as securities will require registration with the SEC and must maintain certain transparency standards in their transactions.

While Gensler did not reference specific tokens, his comments align with growing regulatory scrutiny on digital assets, particularly stablecoins, which have increasingly featured in congressional discussions.

Gensler remarked,

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities,” 

He added,

“These platforms, whether they are decentralized or centralized, must comply with our securities laws.”

Following Gensler’s speech, U.S. Treasury Secretary Janet Yellen also expressed her views post a meeting with the President’s Working Group on Financial Markets (PWG) and Federal Reserve Chair Jerome Powell’s comments to the U.S. Senate Banking Committee. Yellen compared stablecoins to bank deposits and money market mutual funds, two heavily regulated financial products aimed at ensuring consumer protection and overall financial system stability. Powell shared that while he is still deliberating the concept of a central bank digital dollar, he believes that regulation of stablecoins is necessary.

Powell stated,

“If they are to play a significant role in payments, we need a suitable regulatory structure, which we currently lack.”


The Treasury Department indicated,

“The secretary highlighted the urgent need for an appropriate regulatory framework in the U.S.,”

Last year, the PWG, which encompasses the US Treasury, the Federal Reserve, the SEC, and the CFTC, released a document detailing preliminary regulatory concerns regarding stablecoins. This document focused on projects like Diem (formerly Libra), the stablecoin initiative launched by Facebook. However, without Diem, the leading stablecoins, Tether, USDC, and Binance USD still amass a combined market capitalization of $100 billion.

Thus, while current discussions focus on the quality of reserve assets backing stablecoins, the essential principle of “same business, same risk, same regulations” highlighted in the 2020 PWG paper remains relevant.

The document also clarified that “a stablecoin may qualify as a security, commodity, or derivative subject to U.S. federal securities, commodity, and/or derivatives regulations.”

This stands in contrast to regulations in regions like Europe, where preliminary legislation seeks to regulate fiat-backed stablecoins, such as the 100% Collateralised e-Money Stablecoins (eEUR, eCHF, eSEK, eNOK & eDKK), by placing issuers under central bank oversight.

Circle USDC

Circle, the organization behind USDC, released an overview of the assets that secure the stablecoin. Besides cash, USDC is supported by money market funds, commercial paper, corporate, and municipal bonds, along with certificates of deposits from foreign banks.

According to an attestation report by accounting firm Grant Thornton, the reserves backing USDC totaled 22,176,182,251 USDC at the time of the report, assuring that the fair value of Circle’s dollar-denominated assets matched the circulating USDC supply. 

The reserve breakdown indicated that 61% of USDC reserves were in cash and cash equivalents, amounting to $13.4 billion. Additionally, 13% were held in Yankee Certificates of Deposit (CDs), which are dollar-denominated savings instruments offered by foreign banks with U.S. branches.

Furthermore, 12% (roughly $2.7 billion) is allocated to U.S. Treasuries. Meanwhile, nine percent is held in commercial paper, while the remaining five percent is concentrated in corporate bonds. 

In a blog entry, Circle CEO Jeremy Allaire highlighted that the detailed reserve structure of USDC was designed to guarantee that every stablecoin in circulation corresponds to one dollar. He reaffirmed that the Circle team is dedicated to maintaining transparency, accountability, and trustworthiness. 

Tether (USDT)

Shortly after Circle disclosed more information about its USDC asset backing, Tether executives appeared on CNBC’s Tech Check to discuss their token, USDT.

Stuart Hoegner from Tether indicated during a CNBC interview that a full audit of USDT could occur “months away, not years.”

Tether has promised audits since 2017 without delivering one. The company previously engaged New York-based accountants Friedman LLP for reports, but that partnership ended in early 2018, and no audit has been completed since, although Tether did release an attestation report in March 2021, which is generally viewed as less rigorous than a formal audit.


Presently, neither USDC nor Tether qualifies as regulated digital assets since neither token is supervised by a regulatory body. If both USDC and Tether modified their reserve practices to ensure their tokens are genuinely stablecoins (legitimately supported, 1:1, by fiat deposits in banks), appropriate regulation must follow.

As the cryptocurrency sector evolves, particularly stablecoins transitioning from early-stage instruments to mainstream payment methods for goods and services, comprehensive regulation of these products and services is essential for consumer protection. This transformation holds the potential to impact the lives of billions worldwide, particularly those lacking immediate access to financial services. Operation transparency is vital and ought to be prioritized. Building trust and establishing regulations are crucial for fully harnessing the vast potential of stablecoins in the long term.



Audited Stablecoins

Currently, there are only a few fully collateralized stablecoins globally: Paxos Standard (“PAX”), e-Money (“eEUR, eCHF, eSEK, eNOK & eDKK”), Binance Dollar (“BUSD”), and Gemini Dollar (“GUSD”).
The value of each stablecoin token directly corresponds to the value of its respective fiat currency, and the amount of reserve currency equals or exceeds the number of stablecoins in circulation.

Regular audits are
crucial for assuring stablecoin users that the fiat currency underpinning their stablecoins is secure and readily accessible upon request. The New York State Department of Financial Services (NYDFS) guarantees that trust companies and their tokens continuously adhere to strict regulations.

USDC and Tether are frequently utilized within the crypto economy and fulfill important functions, similar to Bitcoin, Ethereum, and other unregulated digital assets. Users willing to accept the risk of tokens backed by only 61% cash or cash equivalents (as in USDC’s case) or 5% (as with Tether) should be able to do so — naturally, in accordance with relevant securities laws. However, it is essential to underscore that these tokens are not 100% backed by regularly audited fiat bank deposits, and it is crucial not to conflate them.

Disclaimer: 

GlobalStablecoins.com serves solely as an informational platform reporting on coins, blockchain firms, products, and events. It should not be interpreted as investment advice. Consult an advisor before risking investments in ICOs, cryptocurrencies, cryptoassets, security tokens, utility tokens, exchange tokens, global stablecoins, or eMoney tokens. GlobalStablecoins.com assumes no responsibility, directly or indirectly, for any losses or damages incurred, claimed or otherwise, due to reliance on content found on the site. 

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