Stablecoin Sector Can Use Regulatory Scrutiny to Its Own Advantage
Stablecoins have had a rocky start to the year. With Tether moving to freeze some $160 million worth of USDT in three addresses on the Ethereum blockchain earlier this month, Meta (formerly Facebook) offloading its ill-fated Diem stablecoin project to one of its former partners, and Washington-based politicians promising to regulate the sector, fiat-pegged coins badly need an injection of positivity.
Fortunately for the sector, some believe that the demand for stablecoins is about to bloom – with experts predicting a rosy future for coins backed by the USD, as well as other currencies.
One such expert is Simone Mazzuca, the CEO of Wallex Trust – the company behind EURST. The firm claims that it is the first live-audited USD asset-backed euro stablecoin on the market.
Speaking exclusively with FX Empire, he explains that while it is natural for token developers to gravitate to the USD in order to “cover as much market as they can,” some investors are looking for diversity.
Arguably, it is precisely this departure from the notion that all stablecoins must be pegged to the greenback that could help spark this growth.
This, Mazzuca suggests, is why Europeans might look for options that help them do business in a currency they are more familiar with.
“The EURST is for all users, for traders, brokers, merchants with Europe and with European clients, and as well for individuals who want to protect their assets, or just to store funds in digital assets for their utilities.”
The token, Mazzuca suggests, will allow Europeans to “link to the international markets.”
Last year, the Japanese internet firm and crypto exchange operator GMO Internet announced the launch of the nation’s first yen-pegged stablecoin.
A second, rival JPY-pegged coin emerged shortly after, and the American stablecoin operator Circle last year announced its own plans to back a yen-pegged token. A number of South Korean firms are also thought to be weighing up their KRW-pegged stablecoin options should the country’s ban on domestic coin offerings be lifted in the coming months.
But Mazzuca suggests EUR-pegged coins could have a very different appeal, as JPY-pegged tokens could be “very restricted as an ecosystem.”
FX Empire: Do stablecoin projects pegged to the JPY and other currencies face the same kind of challenges as yours?
Simone Mazzuca: Stablecoins’ issuance, stability and challenges rely on various factors, not only the peg. It is equally, if not more important, how a stablecoin is issued, the engineering behind it and its features.
Mazzuca claims that coins like his firms could eventually help power cross-border trade, and even “provide an alternative” to the SWIFT payment networks and the EU’s single euro payments area (SEPA) initiative.
He explains that the global economy is “undoubtedly facing a shift” toward the “adoption of cryptocurrencies,” and opines that “stablecoins are the natural and secure bridge to” the crypto sector.
And while European central banks are working on their own digital token (CBDC) projects, stablecoin operators believe that slow progress on this front means that fiat-pegged coins can fill a large gap in the market.
FX Empire: Do you think that CBDCs will open a door for stablecoins? Or will they shrink the market for the sector?
Simone Mazzuca: We believe that CBDCs are a very good idea. However, they are far from becoming a reality for the next three to four years. In the meantime, the demand for stablecoins is already present.
Indeed, if crypto adoption does drive the market and people start to embrace what the CEO calls the “benefits of blockchain,” it is only “logical” that “merchants and businesses will start to accept stablecoins – in order to be competitive.”
But what of the elephant in the room? Some would suggest that regulators appear to have had the knives out for stablecoins right from the start. Politicians all around the world took a very dim view of Diem (formally Libra), dragging Meta/Facebook’s executives in front of House and Senate committees and demanding a climbdown.
The Securities and Exchange Committee (SEC) was also the body that effectively took down the Telegram TON project just weeks from its scheduled launch in 2020.
Arguably it was this kind of pressure that forced the tide of “global stablecoins” run by tech firms back. Since then, few other conventional companies have dared brave the regulatory storm, despite talk years ago of international banks and other big-name firms entering the stablecoin space.
In recent months, Gary Gensler, the head of the SEC, has taken aim at existing stablecoins, equating them to “poker chips at a casino” on numerous occasions, calling for the introduction of strict, bank-like policing – and summoning operators to face a grilling at the hand of US regulators.
Late last year, Japanese regulators also started talking about stablecoin regulation.
But what some may see as a threat, others see as a potential opportunity.
FX Empire: What regulatory challenges does the sector face, and how does it plan to address them?
Simone Mazzuca: “It’s far more important that the SEC has gathered stablecoin issuers for a hearing in order to understand and bring information on stablecoin-issuing mechanisms. I see this action as having major importance. It shows that regulators are open to understanding.”
As a large increase in market cap and stablecoin usage is now “happening,” Mazzuca opines, “it is necessary and inevitable to have certain regulations protecting the market.” He says:
“These regulations would enable a bridge between traditional finance and the crypto space.”
Such regulations, he suggests, could help do away with bad actors and coins that are “not properly asset-backed or transparent and possess risks for their users.”
He concludes that tokens like his own “can be accepted to regulators,” only by “satisfying certain requirements of transparency.”
With mechanisms in place like “mint and burn systems, transparent audited reserves in 100% fiat funds, held in escrow accounts with insurance,” Mazzuca and others like him believe, stablecoins can move out of the “Wild West” space Gensler believes they currently operate in – and into the limelight.