Here’s what happened in blockchain and crypto this week.
Stablecoins are in global regulators’ crosshairs again after the recent TerraUSD collapse. The algorithmic “cryptodollar” which was supposed to be linked to the U.S. dollar lost its peg and sent shockwaves through the crypto market last month. This week, Japan became the first major country to introduce a legal framework around stablecoins pegged to sovereign currencies. Elsewhere, the U.K. government proposed amending existing rules to manage the failure of stablecoin firms that may pose a systemic risk.
Bloomberg reports that Japan’s parliament passed a bill on Friday that clarified the legal status of stablecoins, defining them essentially as digital money. According to the legislation, stablecoins must be linked to the yen or another legal tender and guarantee holders the right to redeem them at face value. The legal definition effectively means stablecoins can only be issued by licensed banks, registered money transfer agents and trust companies. The new law does not address existing redeemable stablecoins from non-Japanese issuers like Tether (USDT), or their algorithmic counterparts.
A new proposal that would give England’s central bank regulatory oversight over stablecoin issuers should they pose a risk to financial stability also turned heads. The Bank of England yesterday announced it would intervene to direct and oversee failing stablecoins should the British central bank decide that an issuer is big enough to pose a systemic risk. The HM Treasury published a document titled “Managing the failure of systemic digital settlement asset (including stablecoin) firms” in response to a cryptocurrency consultation that started in January 2021 and concluded in April this year.
Many crypto market participants warned about the risks surrounding the Terra stablecoin and its synthetic cryptoasset LUNA. Unlike Terra’s algorithmic stablecoin UST, other stablecoins are considered significantly less risky given that they are either fully backed (e.g. Tether, USD Coin, Binance USD) or overcollateralized (e.g. Dai). Although crypto investors view the above-mentioned stablecoins as fairly safe, this is unlikely to stop governments from cracking down on them. Regulators around the world expressed concerns about the risks posed by stablecoins to the broader financial system.
The global cryptoasset market capitalization currently amounts to $1.27 trillion – slightly up from $1.25 trillion since Friday last week, with bitcoin accounting for 44.3%. Among the top 30 cryptoassets by market cap, Cardano (ADA) outperformed, gaining 15.3% over the week. During the same period, the price of bitcoin (BTC) increased by 1% to $29,594 while the price of ether (ETH) dropped by 2.3% to $1,763. The total value locked (TVL) in DeFi sits at $107 billion – roughly unchanged from last week – with Ethereum accounting for about 64% of TVL.
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