OCC’s Hsu: Stablecoins Can Boost Innovation

There are a number of ways to read between the lines of the speech about stablecoins acting coin controller Michael Hsu that he made at a financial conference today (January 13th).

The first, of course, is that he is genuinely concerned about its potential to harm the economy. But this does not preclude the power game.

Despite the broader headline, Hsu’s talk on “The Future of Crypto Assets and Regulation” at the British-American Transatlantic Business Financial Forum on January 13 focused primarily on stablecoins, a type of cryptocurrency that maintains its peg to the US dollar – or other fiat currencies By backing its personal dollar tokens and other highly liquid investments.

One big difference from previous comments was that he started seeing stablecoins as a tool that could have a useful place in the financial market. Or at least accept it.

After a laundry list of evidence that “cryptocurrencies are rapidly becoming mainstream” that ranged from a $2 trillion market cap and the growing craze for the non-fungible token (NFT) to widespread cryptocurrency adoption among underbanked and minority consumers, Hsu said something new.

“Banking regulation will give credence to the ‘stable’ part of stablecoins,” he said. “Regulating stablecoin issuers as banks can enable more innovation in cryptocurrency and make these innovations more sustainable.”

Read more: stablecoin problem

It is a reasonable distance from comments he made two months ago on CoinDesk TV, where he said that the ever-evolving nature of cryptocurrencies is “not what you want” from stablecoins.

“You want your money to be stable and reliable; you want it to be there through thick and thin and you don’t have to think about it,” Hsu said.

Speaking at the forum, Hsu described the broader crypto market as “exciting” and added that it “presents a range of opportunities for banks” before noting that “the risks, the pace of change, and the lack of standards and controls in the crypto space suggest that a cautious and careful approach is warranted.”

The biggest risk he sees is the potential for a crypto-style pullback that catapulted Bear Stearns to its knees in 2008 — something he has seen for himself from positions at the Securities and Exchange Commission and the Treasury. He talked about how it was summed up that if buyers lose faith in the ability of a stablecoin to exchange their tokens for fiat, it is very likely that there will be a run on everyone. Even those who are, as bankers, treasurers, and risk managers, lamented in 2008, “Money is good.”

See also: Senator Warren described DeFi as the “most dangerous” part of cryptocurrency in the Senate hearing

His words are still a far cry from the stance taken by US Senator Elizabeth Warren (D-MA) at the Senate Banking Committee’s December 13 stable hearing, when she urged an anti-crypto witness who called for a ban on stablecoins.

Read also: The Hong Kong Monetary Authority is the biggest threat to stablecoin cryptocurrency

He highlighted the vital role of stablecoins in the world of cryptocurrency trading, calling them “the oxygen of the cryptocurrency ecosystem” and highlighting their “critical role in supporting and facilitating the rapid growth of decentralized finance,” or DeFi.

elbow room

So what is all this? One possible answer is that he is making his way into the battle between the Securities and Exchange Commission and the Commodity Futures Trading Commission – the CFTC – over who will control now that Congress is finally getting serious about crypto regulation.

Read more: In 2021, crypto is ready for close-ups

He noted that operations are as disruptive as hurricanes in that they do not distinguish “between those who deserve to bear the losses and those who are innocent,” and noted that this was especially true of shadow banks in 2008.

“The operation of the stablecoin will not only affect those who have directly invested in it,” Hsu added. “There will be collateral damage… and that damage will continue to grow as long as the cryptocurrency expands.”

Fortunately, he said, there is an effective tool to mitigate these risks: banking regulation, which Hsu said, “would give credibility to the ‘stable’ part of stablecoins.”

This would give investors confidence that even in crises, “the reserves will be there, supervised and vetted by bank supervisors, and perhaps backed by the central bank.”

That’s when Hsu worked on his back-end innovations, arguing that “regulating stablecoin issuers as banks can also enable more innovation in crypto and make these innovations more enduring.”

“While innovation thrives in uncertain environments, solid foundations can help, especially when it comes to money and trust,” he added.

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