Binance’s report covers global stablecoin regulations, emphasizing the impacts of Facebook’s Libra and TerraUSD collapse on regulatory efforts.
Binance, in its latest report, revealed that two big events have influenced stablecoin rules. First, Facebook launched its Libra project in 2019, later renamed Diem, to create a global digital currency, which drew attention from money regulators.
Second, in May 2022, the TerraUSD (UST) collapsed, dropping from $18.7 billion to almost nothing, speeding up the need for new regulations.
These two events have led financial regulators in different countries to double their efforts to establish comprehensive regulations for stablecoins. For instance, the crash of Terra USD has led to a discussion about banning algorithmic stablecoins in the United States.
Similarly, the European Union has stopped algorithmic stablecoins under the Markets in Crypto-Assets (MiCA) framework. Other countries, such as Singapore and Dubai, have been working on developing comprehensive guidelines that will safeguard and make the operations of stablecoin transparent within the financial space.
The exchange noted that these regulations are not only created to reduce risk but to improve innovation and to create an environment where stablecoin can be traded securely.
How Countries Like the US, UK, and UAE Are Crafting Their Digital Asset Regulations
Binance revealed that the EU is now the home of comprehensive stablecoin regulation due to its Market in Crypto-Assets (MiCA) regulation. Mica helps create a unified legal framework for stablecoin operations across all EU member states. The MiCA regulation has been able to provide clarity for market participants and classify stablecoins into electronic money tokens (EMTs) and asset-referenced tokens (ARTs).
The clear regulation in the EU has led to the development of businesses and innovation in the European Union states. Companies like Circle are investing in the EU, viewing it as a leader in Web3 innovation.
The US approach differs from the European Union’s comprehensive regulations under the Markets in Crypto-Assets (MiCA) legislation. The US has relied more on regulatory interpretations and legal processes than a cohesive regulatory framework. The exchange mentioned that the regulatory framework in the US is complicated, as it involves multiple federal and state agencies, including the SEC, CFTC, OCC, and the Federal Reserve. This complex system results in different interpretations and enforcement of regulations across different states.
Furthermore, the United Kingdom’s financial regulatory body, including the Bank of England and the FCA, introduced a phased regulatory framework for digital assets in November 2023, focusing first on fiat-backed stablecoins. The U.K. aims to regulate foreign stablecoins in its payment systems, requiring them to meet standards similar to those of UK-issued ones.
This approach differs from the EU’s Markets in Crypto-Assets (MiCA) regulation, which mandates that stablecoins offered in the EU must come from EU entities.
The United Arab Emirates (UAE) is also improving its digital asset space. It has implemented the Payment Token Services Regulation, which will become effective by 2025. With the new regulation, UAE businesses will be able to accept Dirham Payment Tokens from CBUAE-licensed entities. However, foreign currency-backed stablecoins will be restricted.
The exchange noted that clear global regulation of stablecoins would promote the growth of non-USD stablecoins. They affirmed that with the steady growth and usage of stablecoin, the future of this digital asset looks promising, and the cryptocurrency industry, along with regulators and policymakers, should collaborate effectively to shape an inclusive financial system that promotes economic growth for all.
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