The American crayfish is displacing native species in European waters. Image by liesvanrompaey via License: Creative Commons

Tether, the publisher of the largest stablecoin USDT, presents itself as the right hand of law enforcement. Nevertheless, politicians in the USA and Great Britain want to put further obstacles in the way of stablecoins.

Somehow it was to be expected that the fun would stop with the dollar. Although stablecoins like Tether also have significant advantages for the USA, it is reluctant to let control of the dollar be wrested away from it.

Recently, a senior US Treasury official warned against stablecoins in general, implicitly taking aim at Tether. Wally Adeyemo, deputy secretary of the department, said while addressing a Blockchain Association Washington event that “we cannot allow issuers of dollar-based stablecoins outside the U.S. to have the privilege of using our currency without the responsibility to do so to prevent terrorists from abusing their platform.”

Adeyemo is anything but an opponent of cryptocurrencies. As recently as 2022, speaking at the Consensus conference, he said that he saw a “tremendous opportunity” for innovation in crypto. However, he emphasized there that the industry must “proactively” ensure that digital assets “are not used by transnational criminal organizations, terrorists and rogue states.”

Adeyemo now believes that the industry has not fully lived up to this requirement. Some companies have taken important steps, but “the lack of action by too many companies – large and small – poses a clear and existing risk to our national security.” He is now threatening these companies: “My message is simple: We will find you and hold them accountable.”

If you were wondering what a declaration of war looks like, now you know.

Bank of England wants to regulate cover

The opinions expressed on the other side of the Atlantic are less direct. But there, too, in the United Kingdom, something is brewing, albeit against a different background. The British central bank proposes a “regulatory regime for payment systems with stablecoins” in a paper.

Admittedly, this is less about today’s stablecoins nominated in dollars, but rather about future stablecoins nominated in pounds. Today’s stablecoins are primarily used to complete global crypto transactions. They do not meet the standards we would expect if they were used in a broader sense for payments.”

However, since the central bank fears that “many people in Great Britain could quickly start using stablecoins for everyday payments”, it is necessary to set the necessary regulatory framework for this. The central bank is primarily targeting British companies that issue stablecoins denominated in pounds. But the rules it plans to apply to issuers abroad with stablecoins denominated in other fiat currencies will also apply – but only if they have a significant impact on the UK payments system. The central bank explicitly states that this does not currently apply to USDT and USDC.

In a sense, Britain is preparing for a dollar stablecoin to colonize domestic monetary circuits, much like the American crayfish. If this happens, the central bank’s regulatory claims should take effect. For example, it requires that stablecoins offer comparable security against losses to bank deposits.

To ensure this, the central bank regulates the type of coverage. The assets on whose value the stablecoin is based must “not generate credit, liquidity and market risks.” The central bank has three models for backing stablecoins: First, through deposits in commercial banks, which is the classic model. Secondly, through deposits with commercial and central banks and high-quality government bonds, and thirdly, exclusively through deposits with the central bank. This is the option that the Bank of England prefers.

So far there is no stablecoin that meets this requirement. Instead, the large stablecoins are backed by a mix of bank deposits and government bonds, sometimes also stocks and bonds. This works so well with USDC and USDT that the issuers reap massive profits due to the handsome interest on government bonds.

In addition, the central bank has other requirements, such as the identification of the owners and other things. Effectively, you can interpret their intention as follows: As long as USDT and USDC do not gain a foothold in the British payments system, everything is fine as it is. If they do, the Bank of England will not tolerate them in their current state.


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