SEC to take control of regulating stablecoins? SBF proposes a framework and looks forward to engaging with policymakers

Bloomberg reported that progress has been made on the regulatory issues surrounding stablecoins that the U.S. government has been discussing recently, with a report set to be released this week. In response to this issue, FTX exchange founder SBF has also expressed his views, clearly stating the advantages of stablecoins and the necessary regulatory framework.

SEC Increases Control over Stablecoins

According to a report by Bloomberg, the U.S. Treasury and other institutions are set to release a report this week regarding stablecoins. The report may include the SEC gaining more regulatory power over stablecoins and may call for Congress to pass legislation requiring stablecoin regulation similar to bank deposits.

Over the past few months, SEC Chair Gary Gensler has expressed concerns about stablecoins on many public occasions. He believes that the assets backing stablecoins should be more clearly disclosed and likened stablecoins to chips on a gambling table. If the report is true, the SEC would have significantly more control than before, given that the current market value of stablecoins has surpassed $130 billion.

SBF's Perspective on Stablecoin Regulatory Framework

Stablecoins are one of the most important pieces of the cryptocurrency ecosystem, and have the potential to make payments way more efficient.

They could also use more regulatory oversight than they have now.

Some thoughts on a potential regime:https://t.co/bw0XouGVKj

— SBF (@SBF_FTX) October 26, 2021

Sam Bankman-Fried (SBF), the founder of FTX Exchange, also shared his views on stablecoins today. In his article, he elaborated on what stablecoins are and acknowledged their advantages in asset transfers. Compared to traditional methods of asset transfer, such as peer-to-peer transfer programs, ATM transfers, or bank transfers, which often take more time and incur additional fees, transferring assets using efficient blockchain networks or stablecoins on the same exchange can be completed in less than a minute and cost less than a cent.

However, due to the reserve and redemption risks of stablecoins, as well as the potential for their use in financial crimes, SBF proposed several points that he believes are essential for a reasonable stablecoin regulatory framework:

1. All stablecoins issued to U.S. users must be registered on an official list of "regulated stablecoins" supervised by one or more regulatory agencies.

2. Registration will focus on transparency and reporting, with clear record-keeping and regular audit obligations. The regulatory agency authorized for this plan has the power to revoke the registration of stablecoins that have been successfully registered.

3. Registration will involve the publication of a daily reserve list detailing the total net value of the stablecoin reserves, broken down by category and specifying exact quantities. For example: $100 in XYZ Bank; $95 in short-term U.S. Treasury bonds; $50 in Tier-1 U.S. corporate commercial paper; $10 in other assets approved by a regulatory agency.

4. Registration must require the issuer to maintain sufficient reserves at all times, with all reserve assets subject to clearly defined valuation discounts. For example: U.S. dollars in FDIC-insured bank accounts must be discounted by 0.1%; short-term U.S. Treasury bonds must be discounted by 1%; Tier-1 commercial paper must be discounted by 10%; advanced-country fiat currencies such as Euro, Pound Sterling, Yen, Swiss Franc must be discounted by 20%; Bitcoin must be discounted by 50%. In other words, the higher the risk and volatility of the asset, the greater the valuation discount.

5. Before registration, an accounting firm must conduct semi-annual audits to ensure that the reserves accurately reflect the holdings.

6. Registration must require the issuer to have clear and transparent redemption requirements for stablecoins (e.g., based on customer KYC documents) and a clear customer complaint process if redemption is denied.

7. To combat financial crimes, all registered stablecoins must be recorded on a public ledger and establish a robust minting and redemption process to ensure stablecoins associated with illicit activities cannot be redeemed. Establish a standard blockchain monitoring software through online monitoring and analysis tools.

"Each of these points aims to maintain the availability of stablecoins while addressing current regulatory issues. We look forward to engaging with policymakers, regulators, and market participants on the concepts above," SBF stated in the report.

The report also concludes with a proposed daily reporting diagram for regulatory reference.