The regulator invited applicants with a “genuine interest in developing a stablecoin issuance business” to join the sandbox.

The Hong Kong Monetary Authority (HKMA) started a regulatory sandbox to give potential stablecoin issuers an environment for developing and testing certain operations without penalties.

The sandbox provides regulatory leeway and aligns with Hong Kong’s plan to regulate fiat-backed stablecoins, which are cryptocurrencies pegged to the value of sovereign currencies like the U.S. or Hong Kong dollar, the regulator said on Tuesday.

“Applicants should have genuine interest in developing a stablecoin issuance business in Hong Kong with a reasonable business plan, and their proposed operations under the sandbox arrangement will be conducted within a limited scope and in a risk-controllable manner,” the HKMA notice said.

In December, the jurisdiction’s regulators started seeking public views on its regulatory proposals for stablecoins – including requiring issuers to be licensed in order to operate in Hong Kong.

“The HKMA wishes to leverage the sandbox arrangement to communicate supervisory expectations to parties interested in issuing fiat-referenced stablecoins in Hong Kong, as well as to obtain feedback from participants on the proposed regulatory requirements,” the notice said.

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The Intergovernmental Fintech Working Group is also considering the effect of tokenization on domestic markets.

South Africa’s Intergovernmental Fintech Working Group will look into the use cases of stablecoins as well as their regulatory implications.

The group is also exploring the effect of tokenization on markets and will publish a discussion paper by December on tokenization policy.

South Africa’s Intergovernmental Fintech Working Group will conduct analytical work on use cases for stablecoins and consider an appropriate policy and regulatory response during the course of this year.

The group is also considering the impact of tokenization on domestic markets. Tokenization is the representation of real-world assets (RWA) like securities on a blockchain. The group plans to publish a discussion paper outlining the regulatory implications of tokenization and blockchain-based financial market infrastructure by December.

Alongside many countries, South Africa has been ironing out its approach to crypto. Last year, the Financial Sector Conduct Authority (FSCA) and the Financial Intelligence Centre (FIC) declared crypto to be a financial product and started registering crypto asset service providers. This year, the country will add stablecoins as a particular type of crypto, the Treasury department’s budget paper said on Wednesday. Stablecoins are digital assets whose value is tied to assets like the U.S. dollar.

A presidential election has been set for May 29 and the ruling party’s majority may be at risk, though a change in government seems unlikely to alter the policy approach to crypto.

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Agustin Carstens, who has previously criticized stablecoins, said they do not benefit from the regulatory requirements and protections that apply to bank deposits.

The events of 2022 have cast “serious doubts on the ability of stablecoins to function as money,” said Agustin Carstens, general manager at the Bank for International Settlements, during a Wednesday speech.

Stablecoins, which are cryptocurrencies pegged to the value of other assets like sovereign currencies, do not benefit from the regulatory requirements and protections that apply to bank deposits, Carstens, who leads the association of central banks from around the world, said while speaking at the Monetary Authority of Singapore.

Regulators and lawmakers the world over were skeptical of these cryptocurrencies even before the shocking collapse of algorithmic stablecoin ecosystem Terra in May – that set off a wider crypto market collapse and a string of high profile bankruptcies in the industry. This year, global standard setters have warned many existing stablecoins may not meet the tough standards they have planned for issuers.

Carstens – who had previously criticized stablecoins because of prevailing concerns they could shift power over monetary systems away from central banks to private entities that are “driven by profit” – instead praised tokenized deposits and central bank digital currencies that take advantage of the technologies tied to crypto but preserve the “trust” offered by public systems.

“However, there is an important lesson to be taken from stablecoins from a public policy perspective,” Carstens added. “Stablecoins arose in part because some of the technical capabilities they provide cannot currently be met by existing forms of money.”

Central banks must therefore engage with new technologies and look to innovate, or the private sector “will step in” according to Carstens. In 2021, the BIS signaled for central banks around the world to start exploring national digital currencies. More than 100 jurisdictions around the world are considering wither to issue digital versions of their sovereign currencies.

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The annualized percentage yield from providing stablecoin liquidity on Curve’s 3pool, also known as DeFi’s savings bank account, is nearly 250 basis points less than the yield on the 10-year U.S. Treasury note.

The difference between the returns received by depositing stablecoins on decentralized exchange Curve’s 3pool and the yield from U.S. government bonds continues to widen, highlighting the growing attractiveness of traditional fixed-income markets.

Curve’s 3pool is a liquidity base pool that provides crypto traders a capital-efficient means of swapping between the top three stablecoins – USDT, USDC and DAI.

3pool, also known as Tri-pool, started as a decentralized finance (DeFi) savings bank account during the 2021 bull run. Large traders parked their stablecoin holdings on the pool in return for an annualized percentage yield (APY). The APY comprises a share in trading fees and supplemental fee income via Curve’s governance token CRV.

At press time, the seven-day moving average of 3pool’s APY stood at 0.98%, or 250 basis points less than 10-year U.S. Treasury yield, which stood at 3.54%, according to data sourced from DeFiLlama and crypto services provider Matrixport.

“A year ago, the spread between treasury yields and stablecoins was negligible. Investors were indifferent in ‘parking’ their assets in either ‘low’ yield product. There was no opportunity cost,” said Matrixport’s head of strategy and research, Markus Thielen.

The 10-year yield has nearly doubled year-on-year, thanks to the Federal Reserve’s aggressive liquidity tightening cycle. The central bank has raised the benchmark interest rate by 425 basis points to 4.25% in less than a year with interest rates expected to further rise to nearly 5% later this year.

Meanwhile, DeFI yield’s have crashed from their lofty double digits range in early 2021 as the liquidity-powered crypto bull market started running out of steam in mid-2022.

CoinDesk – UnknownThe spread between APY offered by Curve’ 3 pool consisting of USDT, USDC and DAI and U.S. Treasury yields. (Matrixport Technologies, DeFiLlama) (Matrixport Technologies, DeFi Llama)

The dollar-pegged stablecoins and Treasury yields offered nearly similar yields at the beginning of 2022. At the time, analysts were optimistic that the Fed rate hikes would boost demand for all assets linked to the greenback, including stablecoins.

However, since August 2022, stablecoin yields have dropped relative to treasury yields, disapproving of the strategy of parking money into stablecoins.

The gap is unlikely to narrow in favor of stablecoins anytime soon, considering the Fed plans to lift the benchmark rate above 5% this year and keep it there for some time.

Prospects for the global economy are improving, according to the latest forecast by the International Monetary Fund (IMF). The optimistic growth expectations are likely to keep longer-duration bond yields elevated.

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The algorithmic decentralized stablecoin modeled after Terra’s now-defunct UST lost its dollar peg last month as the collapse of FTX dented investor confidence in digital assets.

The Tron network’s algorithmic stablecoin decentralized USD’s (USDD) search for a stable U.S. dollar peg continues even as the broader crypto market holds steady in the face of widening FTX contagion.

The stablecoin championed by Tron’s founder Justin Sun and managed by Tron’s decentralized autonomous organization (DAO) fell to $0.9695 early Monday, hitting the lowest since June 22, according to data source Coingecko.

USDD deviated from its 1:1 dollar last month as the collapse of cryptocurrency exchange FTX, formerly the world’s third largest, dented investor confidence in digital assets. Other leading stablecoins like tether (USDT) wobbled following the FTX debacle, but quickly regained their peg.

USDD’s prolonged de-pegging is accompanied by a steady increase in the stablecoin’s dominance rate in the USDD/3CRV liquidity pool based on the decentralized exchange Curve.

At press time, USDD accounted for 86% of the pool’s total liquidity of $34.5 million, up from 80% seen on Nov. 10. The heavy imbalance suggests users are increasingly swapping USDD for the pool’s other components – DAI, USDC and USDT.

In an attempt to calm market nerves, Justin Sun announced on Twitter that he is deploying more capital to defend USDD while stressing that the algorithmic stablecoin has a collateral ratio of 200%.

USDD’s inability to regain the peg has Crypto Twitter wondering whether the dollar-pegged coin modeled after Terra’s now-defunct algorithmic stablecoin, UST, is the next to go down.

UST crashed in May, destroying billions in investor wealth. However, before the crash, UST’s market capitalization was $18 billion – or 18 times bigger than UST’s going market value of less than $1 billion. In other words, the fallout from a potential USDD collapse might be less severe than UST.

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In a letter to lawmakers, Jeremy Allaire said inaction will “stunt America’s voice.”

Circle CEO and founder Jeremy Allaire wrote to Congressional leaders for financial services, calling for clear, workable U.S. legislation on stablecoins and warning of the risks to the country of not doing so.

Allaire addressed the letter to Rep. Maxine Waters (D-Cali) and Sen. Sherrod Brown (D-Ohio), who chair the House Committee for Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs respectively, as well as ranking members Rep. Patrick McHenry (R-N.C.) and Sen. Pat Toomey (R-Penn).

Inaction in this area will “stunt America’s voice” as other jurisdictions make progress with establishing comprehensive regulatory regimes for digital assets, according to Allaire.

“The United States is at risk of missing an opportunity to set the rules that will govern the future of payments, money, and other sectors of the global economy,” Allaire said in the letter. He cited China’s development of the digital yuan “with the goal of outpacing the United States and replacing the dollar as the world’s reserve currency.”

Allaire also referred to the risk to consumers in the absence of a clear way of identifying which stablecoins adhere to a bona fide regulatory regime.

“Not all stablecoins are created equal,” he wrote, possibly referring to terraUSD (UST), which plummeted in value in June causing billions of dollars in losses to users worldwide.

Allaire said “reasonable, workable, and clear legislation can unleash new economic activity” through the reassurance it would offer to businesses and consumers that the value embedded in stablecoins is protected by the law. Users would be “shielded from deleterious and irresponsible financial alchemy.”

A stablecoin bill had been expected by many to make its way through Congress sometime this year, however negotiations became bogged down owing to disagreements over topics such as the role of state regulators, the possibility of a future digital dollar in the U.S. and the treatment of customer money held by crypto platforms.

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FTX CEO Sam Bankman-Fried also ruled out a potential acquisition of popular trading app Robinhood.

Cryptocurrency exchange FTX is working on creating a stablecoin, CEO Sam Bankman-Fried told The Big Whale in an interview.

Further details were not available on the website, which is behind a paywall. A stablecoin is a crypto token whose value is tied to that of another asset.

FTX currently offers margin trading that allows customers to use a basket of U.S. dollar stablecoins as collateral. The basket includes TrueUSD (TUSD), USD Coin (USDC), Pax Dollar (USDP), Binance USD (BUSD) and HUSD.

Rival exchange Binance started issuing Binance USD in 2019.

The rise of Tether (USDT), which is the largest stablecoin and has a market cap of $68 billion, also provides a use-case of how stablecoins can thrive even under regulatory scrutiny. Tether is owned by iFinex, a Hong Kong holding company that also owns crypto exchange Bitfinex.

FTX has been spending during the current bear market, making several large acquisitions including a deal to buy crypto lending business BlockFi for up to $240 million. While Bankman-Fried bought a 7.6% stake in retail trading app Robinhood (HOOD) in May, FTX is not interested in acquiring the entire company, he said in the interview.

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The Committee on Payments and Market Infrastructures wants to know if stablecoins can fulfil their promise of cheaper, quicker transactions, according to a new Financial Stability Board report.

Global payment standard-setters want to slash the cost of sending money abroad – and on Monday, an intergovernmental group announced that they’ll be looking at whether stablecoins can help.

The Committee on Payment and Market Infrastructures, an international body that sets norms for the sector, has said it wants to probe the case for cryptos that seek to maintain value against fiat further in the coming months, according to a report published by the Financial Stability Board, an international entity tasked with monitoring the global financial system supported by central banks and finance ministries worldwide.

The CPMI “is considering whether and how the use of well-designed and risk-managed SAs [stablecoin arrangements] could enhance cross-border payments by addressing existing frictions,” the FSB said, with outcomes to be finalized by the end of this year.

“As the stablecoin sector is evolving rapidly with potential to have an impact at global scale, close attention will be required around risk management,” the report added.

The FSB, supported by the Bank for International Settlements (BIS) and chaired by the Netherlands’ Central Bank President Klaas Knot, is shortly due to present plans to set the world’s crypto rulebook, including sharper norms for stablecoins, ahead of a Wednesday meeting of finance ministers.

The FSB said last year that it wanted credited cross-border payments to be possible within one hour, and with transaction costs of under 1%, by 2027, and is currently exploring a number of avenues for achieving this goal.

Proponents of stablecoins such as Libra, later renamed Diem and then abandoned, have cited the current high cost and uncertainty of making cross-border payments as a compelling case, for example helping migrant workers send remittances back home.

But others have been more skeptical, especially in the wake of the high-profile collapse of algorithmic stablecoin terraUSD earlier this year. An August report from the European Central Bank proved more skeptical, saying that bitcoin and stablecoins were among the worst options for cutting costs, citing concerns over the dominant market power of privately led solutions.

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The move comes as DeFi platforms such as Curve and Aave race to craft their own stablecoins to attract users and boost growth.

Decentralized finance (DeFi) platform Coin98 has rolled out its own dollar-pegged, decentralized stablecoin aiming to become a way to move value across different chains, Coin98 announced on Monday in a statement.

The move comes as the race among DeFi protocols to craft their own native stablecoins is heating up in an attempt to attract users and boost liquidity on the platforms. DeFi heavy-weights Curve and Aave are reportedly working on their own stablecoin projects.

Stablecoins are a subset of cryptocurrencies that maintain their price stable to another asset, usually pegged to the U.S. dollar. They serve as an important bridge between government-issued (fiat) currencies and crypto assets, and have seen tremendous growth in the last few years, now making up $152 billion of the $1 trillion crypto asset class.

Coin98 Dollar, also called CUSD, started trading Monday on three blockchains, namely Ethereum, BNB Smart Chain and Solana. “In the long run, CUSD will gradually expand into other DeFi ecosystems in the multi-chain world,” according to a Coin98 post.

CUSD is a fully collateralized stablecoin that supports its value through Circle USDC and Binance USD held in a Coin98 reserve. Users can mint and redeem CUSD at a 1:1 ratio by depositing USDC or BUSD. At the initial phase, the CUSD’s supply will be capped at $50 million.

The stablecoin’s smart contract code has been audited by security firms Inspex, PeckShield and SlowMist, according to a blog post.

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The guidelines from the international organization of securities regulators and BIS’ global payments group set out arrangements for systemically important stablecoins.

The Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published their final guidance on regulating stablecoins Wednesday.
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The guidance is a step toward implementing a “same risk, same regulation” legal framework for stablecoins, which are cryptocurrencies whose value is fixed relative to some other asset, such as national currency or gold.

The CPMI is the BIS forum for international payments and settlements. IOSCO is an organization of the world’s securities regulators.

If a stablecoin performs a transfer function and regulators think it important to financial systems, it should observe the Principles for Financial Market Infrastructures (PFMI) just as a different instrument performing that function would have to, the BIS said in a statement. The principles are the international standards for financial market infrastructures. Countries would decide for themselves whether or not they want to put them in place, it said.

The collapse of Terra’s stablecoin UST in May stirred regulators across the world to call for further regulation. CPMI Chair Jon Cunliffe, who is also a deputy governor of the Bank of England, encouraged regulators to get on with regulating the sector in a speech earlier this week. Meanwhile, the European Systemic Risk Board, which oversees the European Union’s financial system, also said it plans to make proposals on how global standards can be set for crypto assets that could pose a threat to the financial system.

“Recent developments in the crypto asset market have again brought urgency for authorities to address the potential risks posed by crypto assets, including stablecoins more broadly,” Cunliffe said in the report.

This final guidance follows the consultation the two bodies launched last October.

The CPMI and IOSCO will continue examining regulatory issues associated with stablecoin arrangements and coordinate with other standard-setting bodies, they said.

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