Stablecoin

All eyes are on stablecoins: Law Decoded, April 10–17

A week before a hearing in Congress, the United States gets stablecoin regulatory framework.

Last week came in preparation for April 19, when the United States House Financial Services Committee will hold a hearing on stablecoins. The hearing will include information collected by various federal government agencies over the last year. Among the participants are Jake Chervinsky, the chief political officer at the Blockchain Association, and Dante Disparte, the chief strategy officer of Circle.

On the hearing threshold, a new draft bill appeared in the House of Representatives document repository. The draft provides a framework for stablecoins in the United States, putting the Federal Reserve in charge of non-bank stablecoin issuers. According to the document, insured depository institutions seeking to issue stablecoins would fall under the appropriate federal banking agency supervision, while non-bank institutions would be subject to Federal Reserve oversight. Failure to register could result in up to five years in prison and a fine of $1 million. Foreign issuers would also have to seek registration to do business in the country.

Among the factors for approval is the ability of the applicant to maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of seven days or less backed by Treasury bills with a maturity of 90 days or less, and central bank reserve deposits.

SEC targets DeFi in a vote to revisit proposal concerning the definition of ‘exchange’

The U.S. Securities and Exchange Commission (SEC) has announced it will be revisiting the proposed redefinition of an “exchange” under the agency’s rules — a move that could include crypto market participants in decentralized finance (DeFi). Under the proposal, an “exchange” would be more closely defined as a system that “bring[s] together buyers and sellers of securities through structured methods to negotiate a trade” and explicitly include DeFi.

The commission proposed similar amendments in January 2022, keeping the comment period for the public open until June. Some crypto advocacy groups criticized the SEC’s actions at the time, suggesting it was an overreach of the commission’s authority.

Arizona governor vetoes bill targeting taxes on blockchain node hosts

Katie Hobbs, the governor of the American state of Arizona, has vetoed legislation that would have largely stopped local authorities from imposing taxes on individuals and businesses running blockchain nodes. The governor vetoed Arizona Senate Bill 1236, first introduced in January. The legislation aimed to revise sections of statutes pertaining to blockchain technology, mainly reducing or eliminating regulation and taxation of node operators at the state level.

The Italian regulator sets strict guidelines for OpenAI’s ChatGPT

Italy’s data protection agency, known as Garante, has specified the actions that OpenAI must take to revoke an order imposed on ChatGPT. OpenAI must increase its transparency and issue an information notice comprehensively outlining its data processing practices. Additionally, the statement requires OpenAI to implement age-gating measures immediately to prevent minors from accessing its technology and adopt more stringent age verification methods.

In addition, the regulatory agency mandated that OpenAI allow users to object to processing their data to train its algorithms. Also, OpenAI is required to conduct an awareness campaign in Italy to inform individuals that their information is being processed to train its AIs.

Tether market cap eyes record high after regaining 65% stablecoin dominance

The market capitalization of Tether is nearly a billion dollars away from reaching a new lifetime peak while rival stablecoins struggle.

Tether has emerged as a clear winner amid the ongoing banking crisis and crypto crackdown in the United States.

On April 17, the U.S. dollar-pegged stablecoin’s circulating market valuation reached nearly $81 billion, just 1.5% below its record high of $82.29 billion from a year ago. It has grown about 20% year-to-date (YTD) already and is now eyeing new all-time highs.

*USDT market capitalization monthly chart. Source: TradingView*

Tether rivals hit new yearly lows

Tether’s (USDT) growth came as it ate up the market share of its stablecoin rivals, USD Coin (USDC) and Binance USD (BUSD). That is due to crypto traders’ belief that Tether’s operations have no exposure to the potential banking crisis contagion.

For instance, the circulating market capitalization of USD Coin, the second-largest stablecoin, has dropped over 25% YTD to $31.82 billion, its lowest level since October 2021, primarily due to its exposure to the failed Silicon Valley Bank.

*USDC market capitalization monthly chart. Source: TradingView*

BUSD, on the other hand, has witnessed a 60% drop in market capitalization in 2023 to $6.68 billion, its lowest since April 2021, as the New York Department of Financial Services ordered Paxos, a regional crypto firm, to stop its mint and issuance.

Moreover, the U.S. Securities and Exchange Commission asserts that BUSD is a “security.” Conversely, the U.S. Commodity Futures Trading Commission alleges that the stablecoin is a “commodity.”

This capital shift likely helped Tether boost its dominance above 65% in the global stablecoin sector for the first time since May 2021, according to Glassnode data.

*Stablecoin supply dominance. Source: Glassnode*

On April 16, the U.S. House Financial Services Committee published a draft version of its potential stablecoin bill to create definitions for issuers. It says that non-U.S. firms like Tether must register if they cater to Americans, albeit without mentioning the specific agency that would regulate stablecoins.

Exchange stablecoin supply lowest since June 2021

Despite Tether’s market capitalization growth, its supply across crypto exchanges has been declining in 2023.

As of April 16, cryptocurrency exchanges had 12.94 billion USDT in their reserves compared with 17.89 billion USDT at the year’s beginning. On the whole, the stablecoin supply across exchanges has dropped 42% YTD to $21.53 billion.

*Stablecoin supply across exchanges. Source: Glassnode*

This dynamic coincides with the 21% YTD increase in the crypto market’s valuation from $1 trillion in January to $1.21 trillion, suggesting that Q1 has seen a trend shift from “safe” stablecoins to risk-on cryptocurrencies.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Circle exec to join US Congressional committee hearing on stablecoin payments, legislation

The Financial Services Committee issued a memorandum to announce an upcoming hearing titled “Understanding Stablecoins’ Role in Payments and the Need for Legislation.”

The United States House Committee on Financial Services will hold a hearing on April 19 to discuss stablecoins’ position as a means of payment and whether the ecosystem needs supporting legislation.

The committee issued a memorandum to announce an upcoming hearing titled: “Understanding Stablecoins’ Role in Payments and the Need for Legislation.” The hearing will include information collected by various federal government agencies over the last year.

*List of individuals testifying at the upcoming House Financial Services Committee hearing. Source: house.gov*

Participants testifying at the hearing include Circle’s chief strategy officer and head of global policy, Dante Disparte. Last month, on March 11, Circle’s in-house stablecoin offering, USD Coin (USDC), depegged from the U.S. dollar after it revealed it had $3.3 billion of funds stuck at the collapsed Silicon Valley Bank (SVB).

2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.

— Circle (@circle) March 11, 2023

However, following a bailout of SVB depositors by the U.S. government, USDC repegged its value to the U.S. dollar. During this timeline, hackers managed to gain access to Disparte’s Twitter account and started promoting fake loyalty rewards to long-time users of USDC.

The upcoming committee hearing will focus on various stablecoins and their use in the payments landscape. Moreover, the committee will explore the need for stablecoin legislation depending on their underlying collateral structures.

Just days before the upcoming hearing, a draft bill providing a framework for stablecoins in the United States was published in the House of Representatives document repository.

*Draft of the bill, including stablecoin regulations. Source: docs.house.gov*

Speaking about the draft bill, Circle’s CEO Jeremy Allaire said, “There is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated.“

As Cointelegraph reported, the draft further allows the U.S. government to establish standards for interoperability between stablecoins.

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U.S. Congress to introduce new draft bill for stablecoins

Failure to register as a stablecoin issuer could result in up to five years in prison and a fine of $1 million. Issuers out of the United States would have to seek registration to operate in the country.

A new draft bill providing a framework for stablecoins in the United States was published on the House of Representatives’ document repository, a few days before a hearing on the topic on April 19. The draft puts the Federal Reserve in charge of non-bank stablecoin issuers, such as crypto firms Tether and Circle, respectively issuers of Tether (USDT) and USD Coin (USDC).

Stablecoins are a class of cryptocurrencies that attempt to offer investors price stability by being backed by specific assets or using algorithms to adjust their supply based on demand. Stablecoins were introduced in 2014 with the release of the BitUSD.

According to the document, insured depository institutions seeking to issue stablecoins would fall under the appropriate Federal banking agency supervision, while non-bank institutions would be subject to the Federal Reserve oversight. Failure to register could result in up to five years in prison and a fine of $1 million. Issuers out of the United States would have to seek registration to do business in the country.

Among the factors for approval are the ability of the applicant to maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with maturity of 90 days or less, repurchase agreements with maturity of 7 days or less backed by Treasury bills with maturity of 90 days or less, as well as central bank reserve deposits.

Additionally, issuers must demonstrate technical expertise and established governance, as well as the benefits of offering financial inclusion and innovation through stablecoins.

On a Twitter thread, Circle’s CEO Jeremy Allaire said that “there is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated.” Cointelegraph reached out to Tether, but did not receive an immediate response.

Also, as part of the drafted legislation is a two-year ban on issuing, creating or originating stablecoins not backed by real assets. It also establishes that the Treasury Department would conduct a study regarding “endogenously collateralized stablecoins.”

As per the document definition, endogenously stablecoins “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”

The draft further allows the U.S. government to establish standards for interoperability between stablecoins. It also determines that the Congress and the White House would support a Federal Reserve’s study about the issuance of a digital dollar.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

US Congress to introduce new draft bill for stablecoins

Failure to register as a stablecoin issuer could result in up to five years in prison and a fine of $1 million.

A new draft bill providing a framework for stablecoins in the United States was published in the House of Representatives document repository a few days before a scheduled hearing on the topic on April 19. The draft puts the Federal Reserve in charge of non-bank stablecoin issuers, such as crypto firms Tether and Circle, respectively, issuers of Tether (USDT) and USD Coin (USDC).

According to the document, insured depository institutions seeking to issue stablecoins would fall under the appropriate federal banking agency supervision, while non-bank institutions would be subject to Federal Reserve oversight. Failure to register could result in up to five years in prison and a fine of $1 million. Issuers out of the United States would have to seek registration to do business in the country.

Additionally, issuers must demonstrate technical expertise and established governance, as well as the benefits of offering financial inclusion and innovation through stablecoins.

On a Twitter thread, Circle’s CEO Jeremy Allaire said that “there is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated.“ Cointelegraph reached out to Tether but did not receive an immediate response.

Also, as part of the drafted legislation is a two-year ban on issuing, creating or originating stablecoins not backed by tangible assets. It also establishes that the U.S. Department of the Treasury would conduct a study regarding “endogenously collateralized stablecoins.“

*Part of the draft bill outlining a moratorium on creating new stablecoins. Source: docs.house.gov*

As per the document definition, an endogenous stablecoin “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.“

The draft further allows the U.S. government to establish standards for interoperability between stablecoins. It also determines that Congress and the White House would support a Federal Reserve study about issuing a digital dollar.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

Crypto in Europe: Economist breaks down MiCA and future of stablecoins

A principal economist of the European Commission shares his views on stablecoins and the future of regulations in Europe.

In October 2022, the European Union finalized the text of its regulatory framework called Markets in Crypto-Assets or MiCA. The final vote on the new regulation is scheduled for April 19, 2023, meaning the days of an unregulated crypto market in the EU may soon be over. The MiCA regulations introduce clear guidelines for handling cryptocurrencies and consumer protection, and divide crypto assets into different sectors, each subject to specific rules.

The European Commission — the executive branch of the EU responsible for proposing new laws — first proposed the far-reaching regulations in 2020. The MiCA would apply to crypto service providers and issuers of digital assets in 27 EU member countries. By proposing to regulate crypto assets, the European Commission has taken a bold step, displaying the capacity and will to address complex issues creatively.

Joachim Schwerin is the principal economist at the Digital Transformation of Industry unit within the European Commission’s Directorate General for the Internal Market, Industry, Entrepreneurship and SMEs (DG GROW).

Schwerin is responsible for policy development regarding various aspects of token creation, its distribution and regulation (token economy), and the economic applications of distributed ledger technologies.

In 2020, Schwerin coordinated DG GROW’s input into the EU’s Digital Finance Strategy, including MiCA. Speaking to Cointelegraph, Schwerin shared his views on the importance of MiCA, the role of stablecoins, and why he hasn’t ever questioned the merits of blockchain and crypto, even in the wake of Terra’s collapse or the FTX crash.

“We want to develop and promote, not slow down”

With MiCA, the European Commission has adopted a regulatory framework that should minimize the negative consequences of incidents like the insolvencies of FTX and BlockFi in the future. The law was not in force at the time of the FTX case, but Schwerin hopes it will come as soon as possible, saying this should “clearly underpin the precautionary principle.”

“We promote the crypto sector and want to support its organic, market-driven development. The many positive opportunities should be recognized and used. It is like in sports here: Defending can make sense in certain phases of the game, but mostly defending means that a team is too bad to take the game into its own hands. We want to develop and promote, not slow down.”

For Schwerin, FTX was a typical case of an emerging and relatively unregulated industry finding its footing and developing its products and services. Indeed, he stated incidents like FTX and Terra’s collapse provided a chance for the cryptocurrency community to rally, condemn illicit behaviors and work to rebuild the industry’s reputation.

Joachim Schwerin, from @EU_Growth, illustrated his presentation with examples of healthcare institutions which use #Blockchain to manage their supply chains or to access research and data.#ECNCrowdCon2019 pic.twitter.com/UcpCQN9Ca9

— EURADA (@Eurada_RDAs) October 25, 2019

The crypto community is now focusing even more on better rule-setting and compliance in regulated or soon-to-be-regulated environments. It’s also looking more at truly decentralized mechanisms to reduce the potential for error by empowered individuals, Schwering added.

“All of this is positive and does not change the narrative of crypto as a success story with much more future potential.”

Blockchain as a philosophy

Schwerin sees the benefit of blockchain technology primarily in applications for the real economy. He said that Bitcoin (BTC) and other cryptocurrencies are “nice and fascinating with lasting significance,” but these are private concepts and “we don’t need to spend public resources on them.”

Schwerin is confident that the benefits for small businesses and the general population must be evident if the government will tackle something with public resources. And this is precisely the potential that blockchain has:

“That’s why, from the beginning, we didn’t see blockchain primarily as a technology but as a philosophy. [We saw it] as something that enables a true form of decentralization that creates trust; trustworthy technology that also opens up market opportunities for small businesses worldwide and allows many people with the same interests — but who don’t know each other — to come together digitally in the real world and develop projects.”

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The European Commission had this understanding of blockchain technology in mind when discussing dubious initial coin offerings from 2017 to 2018, or that money laundering was supposedly easier with crypto.

But European regulators understood that blockchain technology’s nature — thanks to its transparency and traceability — makes it much easier to track crypto transactions, and distinguish between regular and illicit activities on-chain.

According to Schwerin, financial crime related to cryptocurrencies is much lower than in traditional forms of finance.

“That is why we did not depend on any examples of criminality or the Terra case, just as we did not depend on FTX or any next case of that sort, but we were and are 100% convinced of the technology. We got involved with it early on, and because of that, we had already learned so much by then that we were in a position to work on the MiCA regulation in record time.”

But what about stablecoins?

After the collapse of the Terra ecosystem, the European Central Bank (ECB) issued a report claiming that stablecoins posed a threat to financial stability, but Schwerin does not share this view.

According to him, society needs stablecoins in many different forms because they have important functions within the crypto space, like cushioning price fluctuations and facilitating transactions; this is why the European Commission has allowed stablecoins in principle in the MiCA regulation.

“We have not banned anything, but we have developed basic rules for private stablecoin issuers that we think are reasonable. For example, they must have appropriate minimum liquidity as a reserve”.

Regarding Terra, Schwerin sees the whole thing as a learning process, saying, “The next similar project will simply be better because people have already had this experience. It is a natural evolution of innovation.”

Despite this, there are doubts about whether stablecoins will find a home in the EU. The largest stablecoins — Tether (USDT) and USD Coin (USDC) — are pegged to the United States dollar, with Circle’s euro-pegged stablecoin also issued outside the eurozone. When MiCA comes into force, should we expect more euro stablecoins?

Schwerin hasn’t ruled out the emergence of new euro stablecoins in the EU, but he isn’t expectant either. He says that the macroeconomic context, geopolitics, monetary policy and the euro are simply not moving in that direction.

The MiCA alone is unlikely to significantly increase the number of euro-denominated stablecoins in the euro area, Schwerin stated. “However, MiCA could help us to become more open to stablecoins as a whole.”

When asked whether MiCA could become a ground-breaking global regulatory standard, Schwerin said he sees great interest from other countries, especially the United States. In his view, MiCA is a particularly good example of a regulatory approach that is both innovative and liberal for global regulation of the financial sector.

“However, even though MiCA is ready, we have to be aware of the pace of innovation in the crypto sector and the new challenges it will bring. It was, is and continues to be a long process of learning.”

The views expressed in this interview are those of Schwerin personally and do not reflect or represent the official position of the European Commission.

Stablecoin less preferable form of tokenized money, BIS paper finds

Bearer instruments such as stablecoin harken back to the days of pre-central bank “free banking,” with all the risks that imply, a Bank of International Settlements working paper says.

The singleness of money is the assurance that public and private money trade at the same rates. Even small differences between public and private money rates can have a ripple effect across transactions. A Bank of International Settlements (BIS) working paper compared models of private tokenized money in terms of their singleness as a complement to a central bank digital currency.

Tokenization is “the process of representing claims in a digital form that allows them to be transacted on programmable platforms using smart contracts,” the paper said. Tokenized money can be a bearer instrument, where the claim on the issuer is transferred without affecting the issuer’s balance sheet. Stablecoins are an example of this.

Bearer instruments were prevalent in the days of “free banking” in the United States before the creation of the Federal Reserve, when money could be discounted by its receivers, the authors of the paper wrote. They drew a parallel between that situation and stablecoins depegging on permissionless exchanges.

Alternatively, tokenized money can be a non-bearer instrument, where the sender is debited and receiver credited on their respective balance sheets as the settlement is made in central bank money. The commercial banking system currently operates on this model.

The use of central bank money to settle tokenized money that is a non-bearer instrument guarantees a consistent exchange rate, with the proper design, as “this model requires that both public and private forms of tokenised money are available on the same platform.” Maintaining singleness between digital money and cash would depend on regulation:

“Singleness between private tokenised money and cash would be supported in the same way it is now for commercial bank deposits, provided all private tokenised money issuers comply with the same regulatory standards and have access to the same safeguards.”

Another short BIS working paper was released simultaneously that examined tokenization and found a continuum of challenges and benefits from the process, depending on the nature of the underlying assets.

Bank of International Settlements likes ERC-20 https://t.co/noHmGUbJ8I pic.twitter.com/rz3FEZMkpo

— Mikko Ohtamaa (@moo9000) April 11, 2023

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Ripple, Montenegro sign deal on project for unspecified national digital currency

The deal, teased in January, could create a national digital currency for a country that now uses the euro.

The Central Bank of Montenegro announced on April 11 that it had signed an agreement with Ripple for the development of a strategy and pilot program for a Montenegrin digital currency in the form of a central bank digital currency, or a stablecoin. The country has used the euro as its currency since its introduction in 2002, despite not being part of the Eurozone.

“More details will be revealed later in the year,” RippleX’s vice president for central bank engagements and CBDCs, James Wallis, told Cointelegraph in a written interview. “The project will go through several stages, including identifying the practical application of a digital currency or national stablecoin.”

Wallis indicated that a sandbox stage is planned to put the future digital currency “Into circulation under controlled conditions. […] We’ll work closely with the Central Bank to determine use cases, key success factors, and timelines.” The project will begin this month, he added.

Central Bank of Montenegro Governor Radoje Žugić said in a statement that the central bank would work with the government and the academic community to “analyse the advantages and risks that CBDCs or national stablecoins could pose with respect to the availability of electronic means of payment, security, efficiency, compliance with regulations, and most importantly the protection of end users’ rights and privacy.” He added:

“As a central bank committed to following modern national banking trends, the Central Bank of Montenegro is actively ensuring it maintains an efficient financial system.”

Montenegrin Prime Minister Dritan Abazovic first disclosed the upcoming deal between Ripple and the Montenegrin Central Bank in a tweet from the World Economic Forum Davos in January.

Produktivan sastanak sa CEO kompanije @Ripple @bgarlinghouse i VP za saradnju sa centralnim bankama #JamesWallis. Razgovarali smo o razvoju platne infrastrukture koja bi obezbijedila veću finansijsku dostupnost i inkluziju. Crna Gora otvorena za novu vrijednost i ulaganja. ⬇️ pic.twitter.com/YdPeWHUtCm

— Dr Dritan Abazovic (@DritanAbazovic) January 18, 2023

Ripple has been touting its expansion in the CBDC space for months. Wallis said the company “has multiple CBDC projects ongoing around the world and is in dialogue with dozens of central banks globally.”

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Int’l securities body IOSCO prepares crypto regulation report for 2023

The International Organization of Securities Commissions shared its vision of stablecoin arrangements, decentralized finance and “finfluencers.“

The International Organization of Securities Commissions (IOSCO) will launch a consultation for its regulation report on crypto assets in Q2 2023. The final recommendations from the organization are planned to be published by the end of 2023.

The dates are scheduled in IOSCO’s work program for 2023–24. Two major workflows are dedicated to decentralized assets in IOSCO’s Fintech Task Force plan. The first covers crypto and digital assets, and the second covers decentralized finance (DeFi). The DeFi consultation will start in Q3 of 2023.

According to the work program text, in both areas of the digital market, the IOSCO will focus on investors protection:

“Through the outcomes of its work, IOSCO seeks to support the development of sustainable and innovative capital markets, while enhancing investor protection, maintaining market integrity, and reducing systemic risk.”

Previously, in 2022, the organization published reports on DeFi, stablecoins and influencers. The supervisory capacities that the IOSCO recommends national regulators acquire include regulatory channels to report consumer complaints for misleading and illegal promotions, and evidence-tracking processes to cope with the fast pace and changing nature of online information.

As for DeFi, the IOSCO urged national regulators to take “a granular and holistic understanding of the DeFi market,” which could enhance their ability to create laws relevant legislation.

The 2022 report on stablecoins was delivered by the IOSCO and the Bank for International Settlements. Both bodies define the stablecoin arrangement, which “combines a range of functions to provide an instrument that purports to be used as a means of payment and/or store of value.”

The IOSCO is an association of securities and futures regulators. Its board comprises 35 regulators and top executives, such as the heads of the United States Commodity Futures Trading Commission, the U.S. Securities and Exchange Commission, and the United Kingdom Financial Conduct Authority — among others.

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Tether supply hits $80B for the first time since May 2022 — Stablecoin rivals stumble

The supply of USDT across cryptocurrency exchanges has dropped 28% in 2023, hinting at an overall decline in demand for stablecoins.

Tether (USDT) continues to benefit from the ongoing turmoil in the U.S. dollar-backed stablecoin industry, with its market capitalization growing significantly in Q1 2023 at other stablecoins’ expense.

Tether market cap reaches $80 billion

On April 6, the circulating market capitalization of USDT surpassed $80 billion for the first time since May 2022, with a gain of $15 billion so far in 2023.

*USDT circulating market cap 12-month performance. Source: Messari*

On the other hand, the market caps of its chief rivals, namely USD Coin (USDC) and Binance USD (BUSD), fell by about $12 billion and $9.4 billion, respectively.

*USDC and BUSD circulating market cap year-to-date performance. Source: Messari*

Tether benefits from non-U.S. status

Crypto traders opted for Tether given the growing concerns around USD Coin and Binance USD.

Notably, USDC’s market capitalization slipped due to its $3.3 billion exposure to the now-collapsed Silicon Valley Bank and additional exposure to Silvergate Bank, while BUSD suffered after New York regulators ordered Paxos to shut down the stablecoin’s issuance.

USDC weathered the crisis after the Federal Deposit Insurance Corporation’s assurance that it would make depositors at the insolvent banks whole. As a result, the stablecoin recovered its dollar peg after losing it at the peak of the banking crisis in mid-March.

*USDC price performance YTD. Source: Messari*

But a growing crypto crackdown in the U.S. has prompted investors to maintain distance from regional firms. For instance, Paxos confirmed that the Securities and Exchange Commission treats BUSD as an unregistered security.

On the other hand, Tether is a non-U.S. firm and has repeatedly assured that it has no exposure to insolvent U.S. banks. Nonetheless, it has faced scrutiny over its reserve assets and lack of proper audits for years, despite such issues becoming less of a concern among traders.

USDT supply drops across exchanges

Interestingly, the growth in the USDT circulating supply has coincided with a drop in its supply across exchanges.

Tether’s balance on exchanges has dropped 28% year-to-date to 12.88 billion USDT, according to Glassnode. In comparison, the aggregated stablecoin balance across exchanges has dropped by 41% YTD to $22.31 billion.

*USDT vs. rival stablecoin balances across crypto exchanges. Source: Glassnode*

The decline in stablecoin reserves coincides with a crypto market rally, suggesting that traders have been converting their crypto dollars to buy Bitcoin (BTC) and Ether (ETH).

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.