Here is our pick of the 3 most important stablecoin stories during the week.
How rogue should your stablecoin be?
While we wait for CBDC’s that may never arrive, should we be putting faith in designs that try to accommodate regulators or should we be preparing to live “off grid” as much as possible?
First, the Central Bank of Norway surprised everyone with its latest research paper. The institution hinted at the Bitcoin SV being chosen for the region’s CBDC (Central Bank Digital Currency).
The report hints at many experts considering BSV as the preferred solution for a DLT-based (Distributed Ledger Technology) CBDC. On page 42, the report mentions BSV next to ETH as blockchain networks under consideration for a CBDC.
During the week a paper was released by the founder of Maker DAI, it described the continued effects of the Tornado Cash sanctions, said the industry has “failed to show any kind of value to society,” and outlined two potential paths forward for Maker.
These two paths, which were made clear by the recent sanctions, demand that DeFi projects either become the next fintech product (and fall in line with regulations) or be “treated as something else.” Notably, the latter choice also comes with hefty risk, as understood by the recent arrest of Alexey Pertsev, a Tornado Cash developer.
But because Maker was engineered to remove any possibility of blacklisting or knee-bending to authorities’ requests, the former path isn’t possible, wrote Christensen.
This also means that “at some point in the future, there is a high probability that Maker will be hit by a severe attack by global authorities targeting any attack surface they can find, through a process similar to what led to the [Tornado Cash] sanctions.”
In sum: It’s a question of when, not if, regulators will take aim at MakerDAO and the industry’s leading decentralized stablecoin DAI. With this assumption in mind, Christensen argued that the task now is thus to make DAI as attack-resistant as possible.
The combined market capitalization of the two largest stablecoins, tether (USDT) and USD coin (USDC), has begun to fall again, a sign that quantitative tightening in the crypto financial system has resumed, Morgan Stanley (MS) said in a research report Tuesday.
The decline in market cap of the two stablecoins, which paused in mid-August, has resumed, the report said. The market cap is now about 10% lower than its April peak.
Availability and demand for stablecoins is an indicator of cryptocurrency market liquidity and the demand for leverage, the bank said. When market capitalization falls it is the crypto equivalent of quantitative tightening. That’s the name for when central banks like the U.S. Federal Reserve shrink their balance sheets to remove liquidity from the financial system, seeking to prevent the economy from overheating.
So in summary, the current Crypto market seems to be continuing to deleverage, while Central Banks continue to publish more research papers, in the meantime at least one significant stablecoin is preparing to cut itself off from the Financial System, go rogue and defend itself against possible attacks from Regulators.
We live in interesting times!
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.