Sunday, November 28

The regularization of stablecoins is our fault

The US government continues to put pressure on stablecoins, last Monday the US Treasury Department issued a report asking Congress to pass a law that treats issuers of stablecoins like banks. And it’s our fault.

Among the various stablecoin options on the market, including two that don’t deal with fiat currencies to keep their backing, it seems we’ve chosen the worst possible option. And of course the government will take the opportunity to play the game.

It is worth noting that the government is not worried about Bitcoin, or even really decentralized DeFi protocols, after all they cannot do anything about it and they know that it is, in the case of BTC, a legitimate business.

It’s our fault

This is the freest market we have, it allows us to choose which exchanges, wallets, currencies and services to use. It could be the perfect example that we don’t need a state to dictate rules. However, this does not appear to be the case.

Today we have six stablecoins with an offer of over $1 billion, plus a seventh with $945 million. In other words, we have seven options to choose from, two of which do not even use bank accounts: Dai (DAI) and TerraUSD (UST).

Market value of the six biggest stablecoins. Source: Coingecko

However, stablecoin with the greatest number of coins in circulation and trading volume, since its inception, is the one that offers the least transparency. Tether (USDT) has faced criticism about the lack of public audits for years, as well as the lack of more accurate information when they were carried out.

a good deal for them

Tether even changed the information on its website in 2009, where previously it was indicated that its reserves were dollar-backed in its reserves, now we find a note claiming that its reserves are not only in cash but equivalent to cash, and may include loans made for other companies, including affiliated entities.

China’s housing crisis, focusing on Evergrande, again brought concerns for USDT users in September. As no one knows which commercial papers Tether owns, this crisis could well represent losses of this backing.

Last month, October, Tether also paid a $42.5 million fine due to the discovery that the USDT was not backed by 1:1 for at least one period between June 2016 and February 2019, among others. charges. A very small fine, when compared to the size of this stablecoin, to have the case filed.

Plus, Tether’s $71 billion can be investors any way they want. That is, whoever owns USDT is actually lending money to the company, where the profits will stay with them and the losses will be divided among all. And of course the other stablecoins are following a similar path.

With this, it is obvious that the US government is wanting to regulate this sector, the stablecoin most used by the market is the one that poses the most risks to users. Finally, this is just the beginning of the story, the next step is to track transactions and most likely freeze more and more portfolios. And it’s our fault, for not knowing how to choose.

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