Klaas Knot: Current stablecoins are not ready for regulation

Regulatory authorities regularly look at the risky crypto market with suspicion. Therefore, they want the market to be fast is becoming subject to regulations. Klaas Knot, director of De Nederlandsche Bank (DNB), thinks that even stablecoins are not yet ready for what is to come.

Klaas Knot: financial worries are not gone yet

Knot is also the head of the Financial Stability Board (FSB), an international advisory body. In a letter to the finance ministers and directors of the central banks of G20 countries he writes that he anticipates difficult conditions for the global economy. He cites high inflation and significantly higher interest rates in combination with high debts as reasons for concern.

He also mentions ‘financial intermediaries’. By this he refers to companies in the financial sector that are not banks, but do play an important role in the financial system. Think, for example, of crypto exchanges and publishers of stablecoins. Knot cites the bankrupt investment fund Archegos as an example. This company invested with huge leverage until it went bankrupt. The DNB director wants investors to be better able to repay their debts.

Apparently Knot sees the crypto market as the biggest source of concern, this part of the letter being the longest. He takes FTX as an example. When this huge crypto exchange collapsed, cryptocurrencies not only fell sharply in value, it also had a major impact on many other companies. For example, the crypto lender Genesis is still working to solve the problems by FTX.

Stablecoin publishers not ready for regulations

Perhaps even more importantly, according to Knot, stablecoin issuers are not yet ready for the international regulations for payments, nor for the standards that exist for (issuing and trading) securities.

It is not clear whether the collateral of these stablecoins meets the standards. For years, Tether was notorious for having high-risk corporate bonds as collateral for USDT, but much has since improved. Whether it is enough is not clear.

Knot also shares a schedule from the FSB. In July, the organization aims to unveil a finalized proposal for regulating stablecoins and the rest of the crypto market.

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