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Interpretation of the future trend of the stablecoin market, or "complementary" with CBDC

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Three key risks of stablecoins: bank run risk, settlement risk and systemic risk

Original title: "Circle and Tether dominate the market? Federal Reserve: Stablecoins May Be “Complementary” to CBDCs”

Original author: Jason Brett, Forbes

Original compilation: Unitimes

Last Friday, was worshiped by the President of the United States Federal Reserve Governor Lael Brainard, nominated to be the Federal Reserve's vice chair of supervision, has sounded the alarm over the rapid growth of stablecoins. At the 2022 U.S. Monetary Policy Forum in New York on February 18, Brainard predicted that "if current trends continue, the future stablecoin market may be dominated by one or two issuers."

Brainard describes a "crypto-financial ecosystem" - especially decentralized finance (DeFi) - driving the demand for stablecoins and leading to their rapid growth . Brainard also warned that the influence of cryptocurrency-related advertisements on the Super Bowl in 2022 should be a signal of increased exposure of retail investors to stablecoins.

Meanwhile, the Senate Banking Committee and the House Financial Services Committee have held dedicated meetings over the past two weeks Hearings against stablecoins. Brainard herself is awaiting a decision from Congress on her nomination at the Fed, and her and the other nominees appear to be in the Senate due to differences between the White House and Republican senators over one of the nominees (not Brainard). At an impasse.

The "risk" of stablecoins to the global economy

Brainard says, Some stablecoin issuers themselves predict that “…stablecoins will also expand their influence in payment systems and be commonly used for day-to-day transactions both domestically and across borders.” Assuming this is the future state of the market, Brainard asks regulators to implement “ A strong framework for the quality and adequacy of reserves and risk management and governance in the stablecoin market."

Above: Federal Reserve Governor Lael Brainard, Biden's nominee for the new Fed Vice Chair, is sworn in during a nomination hearing before the Senate Banking Committee on Capitol Hill in Washington, DC, Jan. 13, 2022. Brainard told the committee that trying to bring down inflation was the central bank's most important task.

Regarding the possibility of one or two stablecoin issuing companies dominating the market, according to the results of encryption market intelligence company Messari, the two leading stablecoin issuing companies are ;Tether (USDT) and Circle (USDC), the market capitalization of these two USD stablecoins ranks third and fourth in the cryptocurrency market capitalization rankings respectively (as shown in the figure below), the total market capitalization of the two Reached $407 billion.

The picture above shows the top four cryptocurrencies by market capitalization according to Messari.io data, including Tether (USDT) and USD Coin (USDC) The market value of China ranks third and fourth respectively, and the total market value of the two together reaches 407 billion US dollars.

Brainard said: "...as of January 2022, the largest stablecoins by market capitalization accounted for nearly half of the (cryptocurrency) market, and the four largest Stablecoins add up to nearly 90%.”

The US President’s Financial Market Task Force also elaborated on the risks of stablecoins in a recent report. According to Brainard, the three key risks of stablecoins highlighted in the report—bank run risk, settlement risk, and systemic risk—need to be specifically addressed, not least because of the growing concentration of the stablecoin issuer market.

Stable currency and CBDC may be "complementary"

Brainard A dramatic shift between stablecoins and deposits could lead to mass redemptions by safe-haven users in times of stress, potentially damaging to financial stability. There are indications that the Federal Reserve's analysis may indicate that stablecoins will exist in the future market state, Brainard believes that "CBDC (central bank digital currency) coexists with stablecoins and commercial bank currencies, by providing a safe in the digital financial ecosystem. Central bank debt, may prove to be complementary. Just like cash and commercial bank money coexist now."

Brainard said, in the new figures In the context of the rapid growth of the financial market ecosystem, the primary task of CBDC (Central Bank Digital Currency) is to protect the public's ready access to government-issued, risk-free currency in the digital financial system. Brainard argues that if designed properly, a CBDC could be attractive as a store of value and means of payment, as it is seen as the safest form of money.

New stablecoin legislation is underway on Capitol Hill

In the U.S. House of Representatives Congressman Josh Gottheimer (D-NJ) released a discussion draft of stablecoin legislation following the stablecoin hearings in the Senate and the Senate. According to a press release from his office, the bill could "help reduce the risk of financial market instability, protect consumers, and support ongoing fintech innovation in the United States."

Above: Representative Josh Gottheimer speaks during a news conference on Capitol Hill in Washington, DC, February 9, 2022. The crime rate in the country is on the rise. The latest figures show that between 2019 and 2020, the murder rate in the United States rose by 30%, and violent crime rose by 5%.

Recently, the stablecoin issuer Circle (USDC) announced that as of January 31, 2022, the company has issued USD 50 billion USDC, Dante Disparte, the company’s chief strategy officer and head of global policy, said in a press release from members of Congress, “We welcome the leadership from Rep. adopted a deliberate, risk-based approach.”

Kristin Smith Executive Director, Blockchain Association and Digital Chamber of Commerce Chief Policy Officer Teana Baker Taylor both voiced support for Josh Gottheimer's proposed bill, as did MPs' active engagement with industry in the legislative process.

Smith said: "Rep. Josh Gottheimer's bill is the most comprehensive and thoughtful stablecoin legislation we have seen to date. We are delighted Congress has taken a proactive approach, engaging with industry and government stakeholders as they consider the best path for stablecoin regulation. We thank Rep. Gottheimer for his leadership in this area and look forward to continuing to work with him on these Collaborate on issues.”

Taylor also said: “The Digital Chamber thanks Rep. Josh Gottheimer for his active consultation with the industry and looks forward to continuing to work with Mr. Gottheimer and other members , work together to establish an appropriate regulatory framework, establish appropriate safeguards, maintain innovation, and provide a level playing field for established stablecoin arrangements and new entrants in this growing market.” ;