Stablecoin's influence expands, European Union's Central Bank to regulate more tightly


The European Central Bank (ECB) calls on the European Union to implement stablecoin regulations between countries. This is because stablecoins are increasingly influencing the digital asset market.

Although the crypto market is seen as separate from the global economy by the ECB, there are potential systemic risks as the market share of stable tokens grows.

Stablecoins in the Eyes of the European Central Bank

The ECB highlights the need for international standards for stable tokens, particularly consistency between countries. Because, this is considered to be able to cross between countries in seconds.

The central bank reminded regulators not to assume the economy will be safe from the effects of stablecoins. If this token becomes more popular, then all industries can be affected.

The ECB highlights the role of stablecoins as a source of liquidity in the digital asset market. Currently, the majority of crypto traders use stable tokens such as Tether USD (USDT) and USD Coin (USDC) as a replacement for fiat currencies.

Millions of crypto users use stable tokens to maintain purchasing power, make transfers between exchanges, value derivative instruments and buy other digital assets.

The ECB estimates that half of Bitcoin (BTC) and Ether (ETH) trades use stablecoins.

The main problem with the popularity of stable tokens is the lack of guaranteed funds. Each publisher will use the guarantee of legal agreements, documents and explanations on the site.

Tether modified the original agreement language claiming to keep one USD in the bank account for every one USDT issued. After the Attorney General of New York, USA, reviewed the claim, Tether now guarantees each USDT with various assets.

Other stablecoins have failed miserably, including Terra UST (UST), Base (BAC) and dozens more. Large stable tokens are not without a peg failure, including USDT which once traded for under US$1.

Protos launched, the ECB warned that the failure of one of the five largest stablecoins could have an impact on the main financial sector.

The Financial Stability Agency (FSB) expressed similar sentiments on Monday (11/07/2022) and called for regulation for stable tokens as part of international regulations for digital assets.

In addition, the ECB said the weak regulatory framework led to a lack of clarity for payment processors. The difference in transaction speed between blockchains is another issue, with some stablecoins moving away from Ethereum which is seen as slow and expensive.

The ECB supports the European Union's proposal to regulate digital asset markets. This arrangement is considered an urgent matter for financial stability. The best advice would be enforcement of international stablecoin laws.
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