Stablecoins

IMF to prefer regulating crypto than banning it outright: Report

On the sidelines of the G20 meeting in India, IMF managing director Kristalina Georgieva said the agency would prefer to regulate crypto than an outright ban.

The International Monetary Fund would prefer to differentiate and regulate crypto assets rather than enforce an outright ban, though the nuclear option will remain on the table for now.

Speaking on the sidelines of the G20 finance ministers meetings in Bengaluru, India, IMF Managing Director Kristalina Georgieva explained how the United Nations financial agency views digital assets and what it would like to see in terms of regulation.

“We are very much in favor of regulating the world of digital money,” and this is a top priority, she stated.

During an interview with Bloomberg published on Feb. 27, she responded to a question on her recent comments about a potential complete ban on cryptocurrencies. She said there was still much confusion around the classification of digital money.

“Our first objective is to differentiate between central bank digital currencies that are backed by the state and publically issued crypto assets and stablecoins.”

Fully-backed stablecoins create a “reasonably good space for the economy,” however non-backed crypto assets are speculative, high risk, and not money, she added.

Citing a recent paper recommending global regulation standards, she said that crypto assets cannot be legal tender because they are not backed.

However, the option to ban cryptocurrencies “should not be taken off the table” if they begin to pose a greater risk to financial stability, she warned.

Nevertheless, good regulations, predictability, and consumer protection would be a better option, and banning would not need to be considered, said Georgieva.

Related: IMF exec board endorses crypto policy framework, including no crypto as legal tender

When asked what could cause the decision to ban crypto, she said that an inability to protect consumers from the rapidly evolving world of crypto assets would be the primary catalyst.

The IMF, the Financial Stability Board, and the Bank for International Settlements (BIS) are jointly preparing regulatory framework guidelines to be released in the second half of the year.

IMF prefers to regulate crypto than banning it outright: Report

On the sidelines of the G20 meeting in India, IMF managing director Kristalina Georgieva said the agency would prefer to regulate crypto than an outright ban.

The International Monetary Fund would prefer to differentiate and regulate crypto assets rather than enforce an outright ban, though the nuclear option will remain on the table for now.

Speaking on the sidelines of the G20 finance ministers meetings in Bengaluru, India, IMF Managing Director Kristalina Georgieva explained how the United Nations financial agency views digital assets and what it would like to see in terms of regulation.

“We are very much in favor of regulating the world of digital money,” and this is a top priority, she stated.

During an interview with Bloomberg published on Feb. 27, she responded to a question on her recent comments about a potential complete ban on cryptocurrencies. She said there was still much confusion around the classification of digital money.

“Our first objective is to differentiate between central bank digital currencies that are backed by the state and publically issued crypto assets and stablecoins.”

Fully-backed stablecoins create a “reasonably good space for the economy,” but non-backed crypto assets are speculative, high risk, and not money, she added.

Citing a recent paper recommending global regulation standards, she said that crypto assets cannot be legal tender because they are not backed.

However, the option to ban cryptocurrencies “should not be taken off the table” if they begin to pose a greater risk to financial stability, she warned.

Nevertheless, good regulations, predictability and consumer protection would be a better option, and banning would not need to be considered, Georgieva said.

Related: IMF exec board endorses crypto policy framework, including no crypto as legal tender

When asked what could cause the decision to ban crypto, she said that an inability to protect consumers from the rapidly evolving world of crypto assets would be the primary catalyst.

The IMF, the Financial Stability Board, and the Bank for International Settlements are jointly preparing to release regulatory framework guidelines in the second half of the year.

SEC is not the appropriate regulator for stablecoins: Circle CEO

Circle boss Jeremy Allaire maintains that “payment stablecoins” are payment systems, not securities.

The United States Securities and Exchange Commission is not the appropriate agency to regulate stablecoins, according to Circle founder and CEO Jeremy Allaire.

In an interview with Bloomberg on Feb. 24, the Circle chief executive aired his views on the SEC and its recent moves to clamp down on the crypto industry, including stablecoin issuer Paxos.

Allaire appears to have taken issue with the SEC’s focus on stablecoins, arguing that dollar-pegged “payment stablecoins” should be under the oversight of a banking regulator, rather than the SEC.

“I don’t think the SEC is the regulator for stablecoins,” said Allaire, adding:

“There is a reason why everywhere in the world, including the U.S., the government is specifically saying payment stablecoins are a payment system and banking regulator activity.”

Circle confirmed last week that it had not been targeted by the SEC following the issuance of a Wells notice to Binance USD (BUSD)-issuer Paxos.

“There are lots of flavors, as we like to say, not all stablecoins are created equal,” Allaire said, adding, “But, clearly, from a policy perspective, the uniform view around the world is this is a payment system, prudential regulator space.”

The Circle CEO however said that he was generally in favor of a recent SEC proposal on crypto custody that would make it much harder for exchanges to become custodians.

“We think having qualified custodians that can provide the appropriate control structures and bankruptcy protections and the other things is a very important market structure and very valuable.”

Circle is the issuer of the world’s second-largest stablecoin, USD Coin (USDC). It has a circulating supply of $42.2 billion which gives it a market share of 31%. Tether remains the dominant stablecoin with a supply of $70.6 billion and a market share of 52%, according to CoinGecko.

Related: Why the SEC wants to ban crypto staking and stablecoins under scrutiny

On Feb. 23, Allaire agreed with SEC Commissioner Hester Peirce, who said that the agency should refer to Congress. Due to the lack of legislation, some believe the SEC has been taking things into its own hands concerning crypto regulations and enforcement.

Circle is expanding its headcount by as much as 25%, bucking the general trend of crypto layoffs, the report noted.

Frax Finance to retire algorithmic backing amid stablecoin crackdown

The vote was passed to fully collateralize Frax Finance’s native stablecoin, phasing out its algorithmic backing.

The community of decentralized finance stablecoin protocol Frax Finance has voted to fully collateralize its native stablecoin Frax (FRAX), marking an end to the algorithmic backing of the protocol.

The FIP-188 governance proposal — which would change the collateralization model of FRAX — initially posted on Feb. 15 has now reached a quorum with 98% voting in favor, according to a snapshot on Feb. 23 .

“The time has come for Frax to gradually remove the algorithmic backing of the protocol,” the proposal read.

It explained that the original protocol included a “variable collateral ratio” that adjusted based on the market demand of the stablecoin. The market would dictate how much collateral was required for each FRAX to equal one United States dollar.

The hybrid model resulted in the stablecoin being 80% backed by crypto asset collateral and partially stabilized algorithmically. This was achieved by the minting and burning of its governance token, FXS, which has surged 12% over the past 12 hours.

Frax is the industry’s fifth-largest stablecoin with a market capitalization of just over $1 billion.

Following the implementation of the proposal, the protocol will not mint any more FXS to increase the collateral ratio and token supply.

“To be clear, this proposal does not rely on minting any FXS to achieve the 100% CR.”

It plans to retain protocol revenue to fund the increased collateral ratio, which includes pausing FXS buybacks.

Related: SEC enforcement against Kraken opens doors for Lido, Frax and Rocket Pool

It will also authorize up to $3 million per month in Frax Ether (frxETH) purchases to increase the collateral ratio. frxETH behaves similarly to a stablecoin but is pegged to Ether (ETH) instead. It facilitates the transfer of Ether liquidity within the Frax ecosystem.

DeFiLlama recently reported on the growth of frxETH over the past month.

The move comes amid what appears to be a wider crackdown on stablecoins in the wake of last year’s catastrophic Terra/Luna collapse.

On Feb. 22, the Canadian Securities Administrators published a long list of new requirements for crypto companies and stablecoin issuers wanting to remain legally compliant in the country.

Included on that list were strict rules for stablecoin trading and a prohibition on algorithmic or non-fiat-backed stablecoins.

Ethereum derivatives data suggests $1,700 might not remain a resistance level for long

ETH derivatives data shows bullish traders becoming more comfortable with the $1,700 price level, creating an opportunity for further rallies.

The price of Ether (ETH) rallied 18% between Feb. 13 and Feb. 16 but has since been range trading near the $1,700 level. Despite the recent price improvement, Ether derivatives metrics remain neutral-to-bullish as investors ponder the tighter regulatory environment and the potential impact of Ethereum’s Shanghai upgrade.

Investors’ biggest concern right now is regulation, especially after the United Kingdom’s Financial Stability Board recently stated that most stablecoins fail to meet international standards. The FSB was created by the G20 and is affiliated with the Bank of International Settlements. FSB chair Klaas Knot stated that the appropriate regulation of crypto-assets should be “based on the principle of same activity, same risk, same regulation.”

In more positive news, there has been some improvement in China after the government is reportedly taking a softer approach to Hong Kong’s crypto hub aspirations. According to a Feb. 20 Bloomberg report, representatives from China have been frequenting Hong Kong crypto gatherings seeking to understand local crypto business operations.

A recent Binance report detailed the status of Ether staking and explored why the Shanghai upgrade may not result in the ETH sell pressure that some traders have predicted. Their rationale is based on liquid staking derivatives, which allow users to benefit from staked Ether while retaining the ability to sell the derivative token.

Let’s look at Ether derivatives data to understand if the $1,700 price rejection has impacted crypto investors’ sentiment.

ETH futures show higher demand for leverage longs

The two-month futures annualized premium should trade between 4% to 8% in healthy markets to cover costs and associated risks. However, when the contract trades at a discount versus regular spot markets, it shows a lack of confidence from traders and is a bearish indicator.

Ether 2-month futures annualized premium. Source: Laevitas

The chart above shows that derivatives traders are no longer neutral-to-bearish after the Ether futures premium exceeded the 4% threshold. More importantly, it shows resilience even as ETH failed to sustain the $1,700 support on Feb. 21.

The lessened demand for leverage shorts (bears) does not necessarily translate to an expectation of positive price action. Traders should analyze Ether’s options markets to understand how whales and market makers are pricing the odds of future price movements.

Options risk metrics move away from bearish sentiment

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew metric below -10%, meaning the bearish put options are in less demand.

Ether 30-day options 25% delta skew: Source: Laevitas.ch

The delta skew flirted with the bearish 10% level on Feb. 14, signaling stress from professional traders. However, the situation improved through the week as the index moved close to 0 — indicating similar upside and downside risk appetite.

Currently, options and futures markets point to pro traders moving to a neutral-to-bullish sentiment, displaying higher odds of ETH breaking above the $1,700 resistance. Consequently, the odds favor Ether bulls as investors remained calm despite the regulatory pressure and negative emotions associated with the upcoming Shanghai upgrade.

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.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Yield platform Stablegains sued for promoting UST as a ‘safe’ investment

The now-shuttered stablecoin yield platform is being sued for customer losses after allegedly funneling customer funds into Anchor Protocol without users’ knowledge or consent.

Decentralized finance yield platform Stablegains has been sued in a Californian court for allegedly misleading investors and failing to comply with securities laws.

On Feb. 18, plaintiffs Alec and Artin Ohanian filed a complaint in the U.S. District Court for the central district of California, alleging that the shutteredDeFi platform diverted all of its customer funds to the Anchor Protocol without their knowledge or consent.

Anchor Protocol offered yields of up to 20% on the Terraform Labs algorithmic stablecoin, Terra USD (UST).

“As an early supporter of and investor in TFL [Terraform Labs], Stablegains is intimately familiar with UST and LUNA. In fact, Stablegains, Inc. falsely advertised UST as a safe investment.”

Stablegains offered a 15% gain for its customers, pocketing the difference from yields offered by Anchor Protocol.

The plaintiffs also allege that UST was a security and that Stablegains broke federal securities laws:

“Stablegains plainly failed to comply with federal and state securities laws. Stablegains failed to disclose that UST is in fact a security.”

The complaint added that the firm failed to register with the U.S. Securities and Exchange Commission either as a securities exchange or as a broker-dealer.

The Ohanians stated that there were “disastrous consequences for Stablegains’ customers,” following the collapse of the UST ecosystem in May. UST de-pegged from the dollar, causing a broader run on DeFi and crypto markets in May and an eventual loss of around $18 billion from the Terra/Luna ecosystem.

Following the collapse, Stablegains allegedly altered its website and promotional material touting UST as “safe” and “fiat-backed,” effectively conceding that UST was none of those things, the complaint stated.

Instead of liquidating assets and returning funds to customers, Stablegains “retained the majority of the devalued assets deposited by its users, unilaterally opting to redirect them into Terra 2.0,” it added.

Stablegains, which launched in August 2021, shut down on May 22. It discontinued its services, apps and support for Anchor Protocol, requesting that users withdraw their funds. As reported by Cointelegraph, Stablegains was hit with a similar lawsuit at the time.

Related: SEC sues Do Kwon and Terraform Labs for fraud

The specific amount sought in damages was not detailed, however, the plaintiffs did demand a trial.

On Feb. 16, the SEC filed a lawsuit against Terraform Labs and its founder, Do Kwon, for allegedly “orchestrating a multi-billion dollar crypto asset securities fraud.”

Stablecoins not the target in BUSD crackdown: Matrixport head of research

Crypto financial service Matrixport’s head of research believes regulators are not targeting all stablecoins with the regulatory crackdown on BUSD issuer Paxos.

Crypto financial services Matrixport’s head of research believes the recent scrutiny of Paxos and its Binance USD (BUSD) token is not a direct attack on stablecoins themselves. 

In a Feb. 14 analysis, Matrixport’s Markus Thielen suggested that BUSD issuer Paxos Trust Company may not have been stringent enough with its oversight of the token.

He added that the issue “does not appear to be around stablecoins” in itself.

“Paxos had violated its obligation to conduct tailored, periodic risk assessment and due diligence of Binance and Paxos-issued BUSD customers,” Thielen argued.

On Feb. 13, the New York Department of Financial Services (NYDFS) ordered Paxos to halt the issuance of BUSD “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.”

Paxos also recently confirmed that on Feb. 3, the United States Securities and Exchange Commission (SEC) sent a Wells notice to the stablecoin issuer over its alleged failure to register the offering under federal securities laws.

Thielen notes that BUSD has issued $11 billion on Ethereum, but there’s also $4.8 billion of Binance-Peg BUSD Token on BNB Smart Chain. Binance provides a pegged token service in which BUSD is locked on Ethereum and Binance-Peg BUSD is issued on BNB Chain and other blockchains such as Avalanche and Polygon.

“It appears that NYDFS is now worried that the $4.8 billion might not be properly backed or have had issues with being 1:1 backed,” he said.

However,Paxos has stated as recently as Feb. 13, that, “BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts.” 

In a statement to Cointelegraph, Binance reiterated this stance, saying, “BUSD is a 1 to 1 backed stablecoin that is one of the most transparent stablecoins in existence.”

Thielen notes some of the regulatory actions could have also been sparked by the Jan. 24 incident when Binance mixed customer funds with collateral.

The recent actions against BUSD have still caused some to believe that other stablecoins could be in trouble.

Paxos recently stated that besides the current issue around BUSD, “there are unequivocally no other allegations against Paxos.”

Meanwhile, USD Coin (USDC) issuer Circle’s chief strategy officer and head of global policy, Dante Disparte, told Cointelegraph:

“Circle maintains that USDC is a regulated dollar digital currency issued as stored value under U.S. money transmission law.”

“Facts and circumstances in any type of regulatory action like this are all different, as are the structural and regulatory considerations with each of the cryptocurrencies that are in circulation around the world,” Disparte added.

Related: Paxos ‘categorically disagrees’ with the SEC that BUSD is a security

Thielen has however urged the industry not to be overly concerned about the future of BUSD.

“Binance has shot itself a little bit in the foot here, but they are working on it and it should be resolved. So should we be really worried?” Thielen said.

“I don’t think so. Is the peg breaking? NO. We are no longer in a bear market where you worry about downside, in bull markets, you focus on the upside,” he added.

BIS to launch stablecoin monitoring project and up focus on CBDC experiments

The bank for central banks is expanding its CBDC research while developing a platform to monitor stablecoin balance sheets.

The Bank for International Settlements (BIS) will heighten focus on experimenting with central bank digital currencies (CBDCs) this year via its research and development arm and will also launch a new project to monitor stablecoins.

On Feb. 7, the Switzerland-based so-called “bank for central banks” announced its Innovation Hub will “increase its focus” on CBDCs in 2023 to improve payment systems.

The bank added that its work schedule for the year ahead also includes “Project Pyxtrial,” which it described as a new experiment being launched by the London branch of the BIS Innovation Hub to enable the “systemic monitoring of stablecoins.”

Pyxtrial will develop a platform to monitor the balance sheets of stablecoins. The bank noted that most central banks lack the tools to “systemically monitor stablecoins and avoid asset-liability mismatches,” before adding:

“The project will investigate various technological tools that may help supervisors and regulators to build policy frameworks based on integrated data.”

For its CBDC-related projects, the BIS will focus more on retail CBDCs such as the two-tiered system called Aurum that it piloted in Hong Kong in July.

It stated that CBDCs and payment systems improvements accounted for 15 of the 26 projects that have been active in the last couple of years. It cited increased awareness from central banks as the primary driver.

“This emphasis reflects the interests and priorities of central banks and the G20 countries’ programme to improve cross-border payments.”

It also plans to experiment with the distribution of a retail CBDC through an open API ecosystem in a joint experiment with the Bank of England dubbed Rosalind.

In September, the BIS concluded a pilot for a platform called mBridge, short for Multiple CBDC Bridge. The central banks of Hong Kong, Thailand, China and the United Arab Emirates took part in the pilot in addition to 20 commercial banks from the countries.

Related: BIS economists suggest improving TradFi with CBDC to attract users away from crypto

According to the Atlantic Council’s CBDC tracker, just 11 countries have fully launched a CBDC.  All ar located in the Caribbean aside from Nigeria.

There are pilots underway in 17 nations, mostly in Asia, including China, Russia, Kazakhstan, India, South Korea, Thailand and Malaysia.

Key takeaways from Circle’s $44.5B USDC reserve report

Circle has released its reserve report for December 2022, highlighting overcollateralized asset holdings currently backing 44.5 billion USDC tokens in circulation.

USD Coin (USDC) issuer Circle has released an accountant-verified report of its treasury reserve holdings backing more than $44.5 billion worth of tokens currently in circulation.

Circle’s December 2022 reserve report, reviewed by Grant Thornton accountancy group, breaks down the current make-up of the stablecoin issuer’s reserve vault. According to Circle, 44,553,543,212 USDC is currently backed by $44,693,963,701 U.S. dollars held in custody accounts.

It is worth noting that a significant portion of the latter amount is invested in various U.S. treasury bonds. As per Circle’s vice president of accounting Timothy Singh, the fair value of assets in the USDC reserve is the total balance of U.S. dollar-denominated assets, including a mix of cash and treasury bonds.

Circle’s reserve fund is registered as a government money market fund. The equity interests in the fund are wholly owned by Circle and include 14 different U.S. treasury bills valued at over $23.5 billion. The fund also holds $48.9 million in cash, while a further $33 million is due to the fund, offset by “timing and settlement differences.”

Related: Stablecoin settlements can surpass all major card networks in 2023: Data

Another two U.S. treasury securities valued at $10.5 billion are reported in a separate reserve assets category, alongside another $10.5 billion in cash held by several financial institutions on behalf of Circle.

U.S. banks holding Circle’s cash reserves include the Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, Signature Bank, Silicon Valley Bank and Silvergate Bank.

Circle and payments platform Ripple were notable attendees that participated in cryptocurrency and blockchain-focused workshops at the World Economic Forum in Davos in January 2023. 

Circle’s vice president of global policy, Corey Then, said the organization had discussions with policymakers, traditional companies, tech firms and humanitarian organizations to unpack the possibility of using USDC as a payment solution.

Over the past two years, Circle’s position as a stablecoin issuer has consistently grown, leaving USDC as the second-most-used USD-backed stablecoin, behind Tether (USDT).

Bitcoin hits new post-FTX high as analysis warns move ‘choreographed’

The current BTC price boost may not be a natural phenomenon any longer, new research says.

Bitcoin (BTC) hit new two-month highs overnight into Jan. 19 as suspicions over the market’s validity gained momentum.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

Concern over BTC liquidity “exploit”

Data from Cointelegraph Markets Pro and TradingView followed BTC/USD as it consolidated above $21,000 after hitting $21,455 on Bitstamp.

That marked the pair’s highest point yet in 2023, the latest accomplishment in a bullish recovery unchallenged since the FTX debacle.

Amid widespread mistrust of the move, however, fresh warnings arose as Bitcoin continued to defy predictions of a major retracement.

Analyzing order book composition for BTC/USD on the largest exchange Binance, Material Indicators expressed surprise that those bidding Bitcoin higher had not yet pulled support.

“Been expecting the block of bids placed Fri the 13th to rug, but it’s attracted over 2x the amount of bid liquidity into the range, which is short-term bullish,” it commented.

“IMO, this move seems choreographed. Not fighting it, but limiting exposure to manage risk.”

BTC/USD order book data (Binance). Source: Material Indicators/ Twitter

As Cointelegraph reported, whales were already in the spotlight after mass buying ensued last week.

“They are trying to attract more bids to exploit the thin upside liquidity,” Material Indicators added.

“We could debate 100 different strategic reasons why, but the net effect of big increases in bid liquidity is the same, at least until we retest the local lows and they start rugging support.”

Fellow trader Byzantine General noted similarly unusual order book composition at derivatives platform Deribit, with support between $20,000 and $21,000.

Bitcoin perpetual swaps order book data (Deribit). Source: Byzantine General/ Twitter

“Deribit’s book looks interesting. It’s not often so skewed to one side,” it argued.

Bitcoin supply may struggle to find buyer

Doubts over the rally’s staying power meanwhile extended beyond exchanges.

Related: Bitcoin price breakout or bull trap? 5K Twitter users weigh in

In a blog post published on the analytics platform CryptoQuant on Jan. 16, contributor Phi Deltalytics flagged potential insufficient demand.

The reason, it said, was due to BTC moving back to exchanges for sale, while stablecoin supplies dwindled.

“Recent BTC rally has led to market participants depositing their BTC from cold storage to spot exchanges for profit taking,” commentary stated.

“Such increase in selling pressure along with decreasing reserve of stablecoin for purchase will likely lead to a short-lived recovery rally. More demand is needed for the rally to be sustainable.”

Bitcoin vs. stablecoin reserves annotated chart. Source: CryptoQuant

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.