Squashing Tether - The Coming Regulation in Stablecoins

Patrick Boyle On Finance

Patrick Boyle

Investing, Business

4.9 • 320 Ratings

🗓️ 6 November 2021

⏱️ 13 minutes

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Summary

Send us a textFederal regulators requested more power from Congress to regulate stablecoins, a fast-growing type of cryptocurrency that they warn could result in bank runs and consumer abuse unless lawmakers act quickly, according to a report issued Monday by the Treasury Department.The report, which was undertaken by the President’s Working Group on Financial Markets, called on Congress to pass a law that makes issuers of stablecoins subject to requirements like those of traditional banks an...

Transcript

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0:00.0	Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.
0:27.2	Welcome back, guys. So earlier this week, the president's working group on financial markets
0:32.8	released their report on stable coins. This report gives us the official position of all the US financial
0:40.2	regulators on how they feel stable coins and thus cryptocurrencies in general should be regulated.
0:48.0	And to cut to the chase, the regulators are saying that stable coins should be regulated like
0:53.6	bank deposits.
0:55.2	Now this is a very high standard of regulation, in truth it's a much higher level of regulation
1:00.4	than I expected. There's approximately $130 billion in stable coins right now, and none of it
1:08.0	even comes close to meeting the standards required of a bank.
1:12.1	Now, should Congress pass a law bringing this type of regulation into effect, it would
1:16.9	have massive repercussions on the crypto space.
1:20.4	And so that's what we'll talk about in today's video.
1:23.4	Okay, so first up, what are stable coins?
1:25.9	Well, they're a type of cryptocurrency, but they're quite different to the speculative
1:30.8	coins that you hear a lot about, things like Bitcoin and Ethereum.
1:34.7	A stable coin is a cryptocurrency that's supposed to always be worth a dollar.
1:41.0	There's a number of ways that these things can be structured, but the simplest kind
1:45.2	is what's known as a backed staple coin, where you sell coins for one dollar, take that dollar,
1:51.5	put it in a bank or some sort of safe interest-bearing security, and then stand ready to buy back
1:57.8	the stable coin with that dollar upon request. So why do these things exist?
2:03.7	They might have first sound entirely unnecessary, but they exist because the banking system is
2:09.6	heavily regulated. There are capital requirements requiring banks to have more assets than deposits.
	...

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