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Stablecoin collapse could impact U.S. bond market, economist warns

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Stablecoin collapse could impact U.S. bond market, economist warns

Stablecoin collapse could impact U.S. bond market, economist warns Josh O’Sullivan · 12 seconds ago · 1 min read

Economist Eswar Prasad has warned regulators that a bank run on Stablecoins could have significant impact on the U.S bond markets.

1 min read

Updated: January 14, 2023 at 5:43 pm

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Cover art/illustration via CryptoSlate

Economist Eswar Prasad warned that a bank run on Stablecoins could fallout into the U.S. bond markets if issuers sell U.S. Treasurys to honor redemptions.

Prasad warned that if a bank run should occur while bond market sentiment remains “very fragile,” there could be a “multiplier effect” due to immense selling pressure on Treasurys.

“A large volume of redemptions even in a fairly liquid market can create turmoil in the underlying securities market. And given how important the Treasury securities market is to the broader financial system in the U.S. … I think regulators are rightly concerned.”

Stablecoins such as Tether (USDT) are backed by billions of dollars in reserves to accommodate mass-redemptions scenarios, according to USDT’s November 2022 report.

However, Prasad warned regulators that if many users try to redeem their Stablecoin for fiat, issuers such as USDT would have to sell off their assets in their reserve.

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“If you have a large wave of redemptions that can really hurt liquidity in that market.”

Australia

Here’s what Australian executives are thinking about crypto

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Here’s what Australian executives are thinking about crypto

  • After the assistant treasurer’s recent comments, Australian crypto CEOs have cautioned against defining all digital assets as financial commodities.
  • National Australia Bank (NAB) will create a stablecoin, according to information recently provided to the Australian Financial Review by a senior official.

Australian crypto CEOs have warned against classifying all digital assets as financial goods after the assistant treasurer’s recent remarks on the issue.

Stephen Jones, Assistant Treasurer and Minister for Financial Services discussed the country’s regulatory framework for cryptocurrencies in an interview with the Sydney Morning Herald (SMH) on 22 January.

According to a crypto exchange executive, he acknowledged that the government was on track with its “token mapping” effort this year to establish which crypto assets to regulate.

A consultation process with the industry “will commence shortly,” he said. Jones claimed, though, that he was “not that drawn” to create an entirely new set of rules for what, in his opinion, is fundamentally a financial product.

Crypto development in Australia

According to SMH, the Australian Securities and Investments Commission (ASIC) and Commonwealth Bank, one of Australia’s “Big 4” banks, are apparently in favor of regulating cryptocurrencies as financial products. Jones said,

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“I don’t want to pre-judge the outcomes of the consultation process we are about to embark on. But I start from the position that if it looks like a duck, walks like a duck, and sounds like a duck then it should be treated like one. Other coins or other tokens are essentially used as a store of value for investment and speculation. [There is a] good argument that they should be treated like a financial product.”

Participants in the cryptocurrency market, meanwhile, have cautioned against approaching crypto assets in a general way. Michael Bacina, a partner at Piper Alderman and a blockchain and digital asset attorney, issued a warning: “A broad approach of classifying a technology as a financial product without a clear and usable pathway to licensing and compliance will likely send even more crypto businesses offshore and create more risk.”

Recently, a top executive revealed to the Australian Financial Review that National Australia Bank (NAB) will develop a stablecoin, making it the second of the nation’s main financial institutions to do so (AFR). Later this year, the AUDN coin will debut on the Ethereum and Algorand blockchains.

After competitor Australia and New Zealand Bank (ANZ) issued its stablecoin, branded A$DC, last year, NAB will be the second of Australia’s main four banks to do so.

According to Holger Arians, CEO of cryptocurrency on-ramp provider Banxa, excessive regulation might “seriously harm” Australia’s status as a pioneer in the cryptocurrency industry.

The regulatory framework still awaited

Although Australian financial authorities have not yet formally developed their regulatory framework, the FTX crisis in November has increased the urgency with which Australian politicians and their international colleagues view the need for action.

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The FTX crash, according to Jones, “puts beyond dispute” the necessity of crypto regulation. Australian cryptocurrency investor and entrepreneur Fred Schebesta foresaw potential issues for the sector in September and cautioned against pushing the token mapping.

He continued, “Australia’s young” crypto business needs to “align with the other main markets and their legislation” since token mapping’s complexities are unclear.

Ser Suzuki Shillsalot has 8 years of experience working as a Senior Investigative journalist at The SpamBot Times. He completed a two-hour course in journalism from a popular YouTube video and was one of the few to give it a positive rating. Shillsalot’s writings mainly focus on shilling his favourite cryptos and trolling anyone who disagrees with him. P.S – There is a slight possibility the profile pic is AI-generated. You see, this account is primarily used by our freelancer writers and they wish to remain anonymous. Wait, are they Satoshi? :/

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Bankruptcy

MakerDAO approves 85% Gemini USD holdings in DAI stablecoins

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MakerDAO approves 85% Gemini USD holdings in DAI stablecoins

MakerDAO approves 85% Gemini USD holdings in DAI stablecoins Soumen Datta · 37 mins ago · 2 min read

Maker’s PSM poll showed 50.85% of participants supporting keeping the GUSD debt ceiling at $500 million, while the rest supported its removal.

2 min read

Updated: January 19, 2023 at 9:17 pm

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Cover art/illustration via CryptoSlate

The MakerDAO community voted in favor of keeping Gemini USD stablecoin as part of the protocol’s DAI stablecoin reserves amid concerns about insolvency.

The MakerDAO community earlier started voting on two governance polls in an attempt to limit DAI’s exposure to Gemini due to the liquidity crisis plaguing Gemini’s Earn program. The GUSD stablecoin can be used as collateral to mint Maker’s DAI stablecoin.

The poll that ended on January 19 avoided a tragedy for GUSD as 50.85% of the votes supported keeping the GUSD debt ceiling at $500 million in Maker’s Peg Stability Module (PSM), and 49.15% supported removing it completely.

MakerDAO poll final result

PSM is a mechanism that allows users to mint DAI in exchange for collateral accepted by Maker. Furthermore, it keeps DAI’s peg with the U.S. Dollar. The outcome means that MakerDAO will continue to hold 85% of all GUSD in circulation in its PSM.

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Concerns about GUSD

There have been concerns about MakerDAO’s exposure to Gemini, mainly with the $900 million Gemini Earn assets remaining locked up with Genesis, which has suspended withdrawals. Gemini is also under pressure after it halted withdrawals from its yield-generating Earn program. Further, the U.S. Securities and Exchange Commission charged the exchange for alleged unregistered securities sales.

A further concern for GUSD’s value is that it’s partly backed by cash held at Silvergate Capital. The embattled crypto-friendly bank is one of the many firms that suffered from last year’s crypto-related meltdowns.

However, Genesis CEO Tyler Winklevoss reassured the Maker community by stating the only exposure MakerDAO had to Gemini was through the Peg Stability Module. In addition, the CEO assured that the GUSD reserve backing DAI stablecoin would not be subject to bankruptcy proceedings.

Maker currently has $489 million in GUSD collateral against its debt ceiling of $500 million, the maximum amount of DAI that can be minted with the Gemini Dollar. The proposal from the Strategic Finance Core Unit notes that MakerDAO currently earns $7.3 million from its exposure to GUSD.

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CBDCs

Spanish central bank approves digital Euro token EURM

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Spanish central bank approves digital Euro token EURM

Spanish central bank approves digital Euro token EURM Liam ‘Akiba’ Wright · 4 hours ago · 2 min read

Monei to issue El Banco de España digital currency pilot to last up to 12 months.

2 min read

Updated: January 18, 2023 at 2:43 pm

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Cover art/illustration via CryptoSlate

El Banco de España (Central Bank of Spain) has authorized testing of a digital Euro token EURM.

The token will be issued by Spanish fintech Monei and was developed within the central bank’s digital ‘sandbox’ program.

Spanish news site Cinco Dias reported that the project would be limited to a small group of testing applicants during the initial phase. Applicants are required to enter a phone number and undergo a video-based KYC process before loading their digital wallets with traditional Euros through the  Spanish payment app Bizum.

Once wallets have been funded, users can send EURM tokens to other participants and registered businesses. Deposited FIAT Euros will be held in two designated bank accounts with BBVA and CaixaBank. All EURM tokens will be backed 1:1 with FIAT at all times, according to the announcement.

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The pilot is intended to last up to 12 months, with reports produced to allow the central bank to decide whether to authorize an official launch. At the same time, there are already stablecoins pegged to the Euro, such as Circle’s EUROC, Tether’s EURT, and Stasis Euro. Tether’s Euro token has the highest TVL, with a market cap of $223 million as of press time.

The Bank of Spain does not sanction Stablecoins issued by companies such as Tether and Circle. As a result, the central bank needs to have the ability to verify reserves to ensure all digital tokens are backed 1:1 with FIAT.

Monei founder and CEO Alex Saiz Verdaguer confirmed there “are different projects, but it is very likely that there will be confluences along the way.” Further, he stated that EURM “could be a pilot test for the ECB.” Thus, while the EURM token may not be revolutionary regarding stablecoins, its connection to Spain’s central bank indicates the progression of CBDCs.

However, unlike other Euro-pegged stablecoins, the vision for EURM is to allow El Banco de España to control the issuance of  “programmable money.”

Verdaguer told Cinco Dias that the tokens could be programmed to avoid negative balances, allowing for delayed smart payments until funds are available.

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Such facilities could help users avoid going overdrawn and being charged additional bank fees. The digital currency could also be programmed to process payroll for businesses at pre-defined intervals automatically.

Still, the level of control given to central banks through programmable money also increases the risk of government exploitation. For example, central banks could remotely restrict the spending power of any digital currency user or limit the use of specific services and products. Further, taxation could be controlled through smart contracts by taking tax payments in real-time based on income and usage.

The potential use cases for CBDCs have been widely debated over the years. However, the news of a significant European central bank testing the implementation of digital tokens certainly moves the needle closer to realizing a CBDC in Europe.

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