The cryptocurrency exchange platform Coinbase has published a series of tweets giving its perspective on stablecoins, providing a good summary and insight about them 1.
The context is the decision by the New York state Department of Financial Services (NYDFS) to order Paxos to stop issuing the US dollar-denominated stablecoin BUSD and the Securities and Exchange Commission (SEC) to issue Paxos with a Wells notice. Paxos specialises in blockchain, offering a cryptocurrency brokerage service, asset tokenisation services, and settlement services. A Wells Notice is a letter from the SEC that informs a firm that the SEC has completed an investigation and found violations of the securities laws.
The tweet starts by making the point that why the SEC is interested in BUSD is not clear, but that stablecoins are not securities. Coinbase believes US dollar-backed stablecoins have a role in creating a more equitable and efficient financial system, and that the US needs to encourage the development of stablecoins.
‘First, what’s a US dollar-backed stablecoin? US dollar-backed (or cash equivalent) stablecoins are digital currencies pegged to a reserve asset like the US dollar and are designed to remain equal to the value of their peg.
‘One way to peg digital currency to USD: take $1 in cash or cash equivalents for every stablecoin created and hold it in cash, Treasury-bills, or other cash equivalent funds that back up the full value in circulation. Disclosures then drive transparency of the 1:1 backing, like USDC.
‘Why use a stablecoin like USDC? The value of fiat-pegged stablecoins stays stable over time, and their digital properties make them faster, more efficient, and more accessible ways to conduct commerce. Their stable value over time is also why they’re not used as investments.
‘For customers, stablecoins like USDC transcend banking hours and global borders. You can send anyone in the world USDC, and they’ll receive it instantly. You don’t need a US bank account to hold value pegged to USD, protecting against local currency devaluation.
‘For businesses, stablecoins like USDC make settling payments instant and cost-effective. They allow you to receive payments in just seconds, without the long processing time and high fees that can be associated with intermediaries like banks and credit card companies.
‘Stablecoins help bridge the gap from traditional finance to a more efficient and equitable financial system. As more global cash digitizes, the US will benefit enormously if USD continues to be the most trusted and used global reserve currency for fiat-backed stablecoins.’
1 - Thread by @coinbase on Thread Reader App – Thread Reader App
