How can America establish itself as a crypto leader?

 

The TeraUSD (UST) crash week is one of the most painful weeks in crypto history - and one we have long adored. This has hurt the crypto market, resulting in billions of dollars in losses. And while those in Washington, DC are properly discussing the next steps, an intelligent, thoughtful conversation about potential regulation is essential.

StableCoins is a significant innovation, offering multiple benefits to users and a competitive advantage to the United States. Stablecoins improve efficiency in payments and transfers, reduce costs and speed up disposition for businesses and customers. They make the financial system more inclusive by providing free access to anyone, regardless of their background or financial status. US geopolitical interests can be advanced by consolidating the dominance of the global dollar in the face of the efforts of our opponents, such as China and Russia, to undermine US leadership in the economy.

Jake Cherwinski is Head of Policy at the Blockchain Association.

As the name suggests, StableCoins aims to be consistent and reliable. Generally, there are two broad categories of stablecoins: custodial and decentralized.

Custodial stablecoins are issued by central managers and supported by collateral in a bank or other institution. They are usually completely based on this: dealers have one dollar in the bank for every dollar of stablecoins. Custodial stablecoins represent the bulk of the total stablecoin volume and are extremely stable and reliable if the distributor is trustworthy and transparent.

Decentralizedstablecoins are designed to address the fact that not all distributors are trustworthy or transparent. Their goal - like the public blockchains that enable them - is to eliminate the reliance on trusted intermediaries in the financial system, which usually does more harm than good. They achieve that goal by producing stable coins that want to maintain their peg to the dollar through an autonomous operating code, rather than relying on central issuers. Instead of being backed by dollars in banks, decentralized stablecoins are generally supported by other digital assets that are collateralized on the blockchain.

Importantly, custodial and decentralized stablecoins use different models, but not fundamentally better or worse. Each has unique characteristics - both advantages and risks - that create a strong, competitive market characterized by consumer choices. We must support responsible innovation in both disciplines.

Unfortunately, the UST is in a category of its own, relying on a purely algorithmic mechanism to maintain price stability without collateral, which is a risky model, and many of their predictions may fail.

So, following the events of this month, how should policymakers respond?

First, policymakers must follow the process set by President Joe Biden's Executive Order (EO) earlier this year, as US Treasury Secretary Janet Yellen indicated in congressional testimony on May 12. EO - directs federal agencies to study crypto and report on regulatory priorities and solutions - providing clear guidance on how to proceed thoughtfully under the control of Stablecoin. That work is important and continuous. With the input of industry stakeholders and business groups such as my employer, Blockchain Association, policymakers should develop a strong understanding of the essential differences between the StableCoin space and the different StableCoin designs. This is a necessary first step before creating effective control.

Secondly, a bipartisan consensus must be developed in Congress. Following the collapse of the UST, Congress was embroiled in both sides of the aisle on the issue. But as my colleague Kristin Smith recently wrote, crypto is too big for partisan politics. We need leaders on both sides of the aisle to put together and determine the best regulatory approach to crypto. As the President's Working Group on Financial Markets (PWG) recommended in its report on StableCoins last year, the regulatory solution must come from Congress - not from regulatory agencies.

Third, new rules should be adopted that are appropriate for this purpose. These policies must be balanced and consider the essential nature of dollar-denominated stablecoins for US financial security in the coming decades. We need a compliant regulatory framework that outlines the specific benefits and risks of stablecoins. For Custodial Stable Coins, the Senate and House of Representatives are good examples of smart regulatory approaches from both sides of the aisle - Sen. Pat Tommy (R-Pa.) And Rep. Josh Gotheimer (D-N.J.) Proposed a set of individually appropriate frames. Over time, we have decentralized st