Since its launch on August 7, Paypal’s stablecoin PYUSD hasn’t received a better welcome. From centralization concerns to regulatory scrutiny, there are signs that stablecoins may have a hard time stabilizing, and the latest development reinforces this belief.
Fed warning to banks
in letter On August 8, the Federal Reserve also laid out guidelines for country member banks that may look to issue, offer, and trade dollar-backed stablecoins. Remember, the Fed was in the beginning, at press releaseprovided that the supervised banks can demonstrate to the Fed supervisors that they have put in place “appropriate safeguards” to conduct transactions related to the stablecoin safely and soundly.
According to the Fed, these banks must first receive a “written notice of supervisory no-objection” from the agency before they can proceed with dealings with dollar-backed stablecoins. Even after receiving this notice, these banks will be subject to “rigorous supervisory review and monitoring of these activities.”
The agency further went on to explain the risks (associated with stablecoin trading) that these “appropriate safeguards” are intended to cover. These risks include operational risk, illicit financing risk, consumer compliance risk, liquidity risk, and cyber security risk.
How could this hinder the benefit of PYUSD
While this could simply be the Federal Reserve doing its thing, these guidelines could undoubtedly cause unease among banks that might have been looking to accept PYUSD or any other stablecoin for that matter. Furthermore, what constitutes “appropriate collateral” is personal (and known only to the agency), and without the approval of the Fed, these banks cannot transact with these dollar tokens.
Given the guidelines, banks may have to take the easy way out by refraining from engaging in these proposed activities rather than go in and get burned by the regulator. We saw this game when many banks refused to allow fiat on cryptocurrency trading platforms through their banking system.
If banks choose to go ahead with their plans to introduce stablecoins, they can at least rest assured that the cybersecurity and liquidity risks mentioned by the Fed are well covered. The Fed referred to the network through which dollar currencies are transacted, and in connection with this, PYUSD and other notable stablecoins such as Tether’s USDT and Circle’s USDC are transacted on the Ethereum network – the blockchain happens to be one of the most powerful and secure in the world. industry.
In terms of liquidity risk, stablecoins are less volatile compared to other cryptocurrencies and are fully backed by an underlying asset. Paypal confirmed that its stablecoin is backed by US dollar reserves, and customers can redeem it at any time.
While this latest development may be a setback for the fintech company, there are some positives, such as the recent Huobi cryptocurrency exchange. announce They will list and include PYUSD in their trading pairs.
“As soon as market trading conditions and liquidity reach a peak, Huobi will immediately start trading against PYUSD.” The stock exchange stated in its press release.
PayPal stock holds $62 | Source: PayPal Holdings, Inc. on Tradingview.com
Featured image from UnSplash, chart from Tradingview.com