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Crypto: The Stablecoins

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The US House Financial Services Committee held a hearing on stablecoins during February 2022. And members of that committee have begun discussing a bill which would set rules for circulating stablecoins from an issuer and levels for proportional reserves.

This would create an issue when regulating algorithmic stablecoins because in that case, if the USD-pegged stablecoin, for an issuer, if it falls below $1, they would rely on a 2nd cryptocurrency to almost manipulate the price of their stablecoin back to $1. And regulators are not a fan of currency manipulation.

So to this point, Congress’s stance on stablecoin issuers should need to receive the same licensing allowances that ensure depository institutions must abide by too. I learned Friday, that CEDE, the depository trust is working on the issues now.

If you ask Gary Gensler, the SEC boss, he will say that it is a poker chip. But a stablecoin by the proper definition is a type of token that is designed to always carry a fixed value. So these are coins that are less volatile because they are backed either by Fiat currency or even by a commodity averse to the price fluctuations often experienced by the most well-known cryptocurrencies.

The SEC’s Gensler expects that roughly 80% to 85% of trading and lending on crypto platforms involves stablecoins, per his comments to the Penn Law Capital Markets Association. Further, Acting Comptroller of the Currency, Michael Hsu, paints the picture of the relationship between the holistic cryptocurrency market and stablecoins to be like an upside down pyramid with roughly $2-T of crypto resting on $180-B of stablecoins.

We all know about some of the largest coins, Bitcoin and Ethereum, but did you know that the 3rd largest cryptocurrency is actually Tether, and it is actually a stablecoin. Actually, 2 out of the Top 5 cryptocurrencies are stablecoins, which illustrates the Key role that stablecoins play in cryptocurrency utilization and transactions. And while Tether is the largest stablecoin, other common tokens pegged to the value of traditional currency are USD coin and even Binance USD.

There are 4 main stablecoins: Fiat-backed, crypto-backed, commodity-backed, and algorithmic.

Now, Fiat currency-backed is the most utilized, where the entity, they issue an amount of coins representative of an actual USD amount that they hold. So, $100-M, 100-M stablecoins. In application if you purchase into a stablecoin issued or minted by that entity holding the real money, that would allow the purchaser to use their coins, their new coins, to exchange with other blockchain-based assets.

And if you already own other cryptocurrencies, then those holdings can be converted into stablecoins. And then those stablecoins can be redeemed for real money, cash money.

Cash rules everything or coins rule everything around this security!

Have a prosperous weekend, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.