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Bank regulator, not SEC, should oversee stablecoins - Circle CEO

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(Kitco News) - The CEO of Circle, Jeremy Allaire, believes stablecoins should be overseen by banking regulators, according to a report published Thursday.

“I don’t think the SEC is the regulator for stablecoins,” Allaire said in an interview with Bloomberg. “There is a reason why everywhere in the world, including the US, the government is specifically saying payment stablecoins are a payment system and banking regulator activity.”

Stablecoins such as Tether USD (USDT) and USD Coin (USDC) are the essential financial instruments that underpin cryptocurrency exchange as they enable investors to instantly move between other digital assets and these quasi-fiat currencies.

But the depegging and collapse of some algorithmic stablecoins, most notably TerraUSD, and doubts about the true reserves behind collateralized stablecoins have made these tokens a particular area of focus for regulators and central banks.

The Securities and Exchange Commission has ratcheted up their pressure on the crypto industry in recent weeks, announcing a series of enforcement actions against cryptocurrency exchanges, but also targeting stablecoins.

On Feb. 13, Paxos Trust announced that they would stop issuing the Binance USD coin (BUSD), the third largest stablecoin by market cap, following an order from the New York Department of Financial Services (NYDFS) and a ‘Wells notice’ from the Securities and Exchange Commission (SEC) informing them that the SEC considered BUSD to be an unregistered security.

Circle is the issuer of USD Coin (USDC), the second-largest stablecoin in the world with a market cap of over $42 billion. USDC is managed by a consortium called Centre, which was founded by Circle and includes the U.S.-based Coinbase exchange.

Last week, Circle confirmed that unlike Paxos, they had not received a Wells notice from the SEC about USDC. However, Coinbase has been butting heads with the SEC over their staking services after the Kraken exchange was ordered to shut theirs down.

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

Allaire also said he supports a recent SEC proposal to require financial firms to use a “qualified custodian” for their customers’ crypto holdings. According to the SEC, a qualified custodian generally refers to a chartered bank or trust company, a broker-dealer registered with the SEC, or a futures commission merchant registered with the Commodity Futures Trading Commission (CFTC).

“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,” Allaire said. “We have seen a lot of lessons learned that random exchanges have your assets. There is a reason why you have that kind of rule.”

The Bank of International Settlements (BIS) recently announced a new initiative focused on stablecoins. Pyxtrial aims to “enable systemic monitoring of stablecoins,” which are among the most important and contentious digital assets in the cryptosphere.

The goal of Pyxtrial is to develop a technology platform that can help to monitor stablecoin's balance sheets. “Most central banks lack tools to systemically monitor stablecoins and avoid asset-liability mismatches,” the BIS wrote. “[Pyxtrial] will investigate various technological tools that may help supervisors and regulators to build policy frameworks based on integrated data.”

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