The passage of MiCA is a defining moment in the effort to bring greater oversight and transparency to crypto markets. TerraUSD now trades under TerraClassicUSD (USTC) since the Terra blockchain was officially halted and de-pegged from the U.S. dollar on May 9. Overall, the safety of a stablecoin depends on how you define safety in the first place.

It is issued by Tether Ltd, a company closely affiliated with a cryptocurrency exchange, Bitfinex. Although Tether initially operated outside the regulatory purview and didn’t publish regular audits of its reserves, the company has since made amends. The company “Trust Token” offers stablecoins in multiple https://www.tokenexus.com/nem/ currencies, fully backed by reserves. Some of these coins are listed at exchanges, so foreign exchange is also possible. TerraUSD (UST) was linked to Terra’s native token, LUNA, via an arbitrage mechanism that was designed to simultaneously maintain its dollar peg and ensure LUNA’s long-term growth.

Crypto-collateralized stablecoins

HM Treasury’s response to the consultation was published in April 2022, outlining the government’s intention to bring stablecoins, when used as a means of payment, into the regulatory permitter. An algorithmic stablecoin issuer can’t set monetary policies for buyers. Such a peculiarity may lead to stablecoin’s value decreasing overnight, as it happened with TerraUSD.

Sometimes (like the notorious and recently-crashed UST coin) an ecosystem has some crypto collateral anyway for emergencies. This can create its own problems if something goes wrong, and the algorithms dump it on the market. The difference between a crypto-collateralised stablecoin and an “algorithmic” stablecoin is that the crypto-collateralised one uses established crypto with a known and independent value, such as bitcoin or ethereum. Now that there are debit cards running off some fiat stablecoins, you can do pretty much anything you can do with “real” dollars.

CBDC: Central Bank Digital Currency and the DLT Revolution

The simplest and most simon-pure approach would be to simply oblige stablecoin issuers to deposit 100% of the fiat currency they receive with the national central bank and remunerate them accordingly. It would probably not overly disconcert many of the putative issuers for whom liquidity is not really an issue. According to the FSB, the emergence of global stable coins (GSCs) may challenge the comprehensiveness and effectiveness of existing regulatory and supervisory oversight. They therefor proposed some principles for regulating stablecoins, including restrictions
on reserves, limits on risk and transparency requirements. That should promote coordinated and effective regulation, supervision and oversight of GSC arrangements These arrangements should address the financial stability risks posed by GSCs, both at the domestic
and international level.

Stablecoins are freely transferable just like cash; anyone on the blockchain network can receive and send coins. The coins are structured as bearer instruments, giving the holder
the rights to redeem the coins for US dollars at any time. This is especially relevant in the decentralized finance (DeFi) segment, where stablecoins play an important role what is a stablecoin to enable the ecosystem. Mainstream applications with stablecoins are also picking
up in cross-border payments, where they are being used to facilitate cross-border trade and remittances. Stablecoins are most popularly used to quickly switch between a volatile cryptocurrency and a stablecoin, while trading, to protect the value of holdings.

The $10 Billion Crypto Crime Problem

Whereas central banks – like the Bank of England – issue and oversee the money we use daily, cryptos are developed and run by groups, individuals or companies. Publicly available information about some of these groups/individuals can be vague, and, as crypto activity is not regulated yet in the UK, there is no safety net if things go wrong. Much the same is being said in other locales, with the UK and the European Union (EU) ( by way of its MiCA legislation) both signaling the likelihood of stablecoin regulation. The Financial Action Task Force (FATF) has also had stablecoin regulation in its sights since 2019, but has not followed through yet. The Terra collapse now demands renewed scrutiny of stablecoins by all regulators.

However, it is unclear what would be caught here given the separate entities with loose connections that may form part of a GSC arrangement. Prior to mid-2019, the prospect of a detailed regulatory regime being developed for stablecoins might have been met with a degree of surprise and scepticism. G7 Summit
At the recently held 2021 G7 Summit in Cornwall (UK) delegations concluded that common standards would be maintained through international cooperation, as well as, standards from the Financial Standards Board. They concluded that no global stablecoin project
should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards. The pros of CBDCs are that they may help fight financial exclusion and reduce the number of unbanked citizens. Digital currencies could be made available to unbanked populations by granting access to digital wallets on smartphones.

Stablecoins are not that stable: what regulatory approach?

The fiat-backed stablecoin has successfully built credibility by focusing heavily on regulation. In fact, the reserves held to back the coin are audited monthly by an independent accountancy company to confirm that the currency is sufficiently backed. TrueUSD is another type of fiat-backed stablecoin that offers stability in typically volatile markets. One of the great things about Dai is that, since it is backed by crypto assets, crypto investors can convert Dai into ethereum during times of increased volatility. Fiat currency-backed and precious metal-backed Stablecoins are technically centralized as the asset they are pegged to is centralized. This can be a concern for some investors, particularly those looking to diversify their portfolios with decentralized investments.

Indeed, the faith of consumers (and hence the lack of catastrophic runs) in traditional financial institutions has arguably little to do with the quality of their asset backing or the calibre of the regulators who supervise them. It has rather more to do with the fact that, in times of crisis, the government can and will step in to make depositors whole, whether or not such a system could truly survive a meltdown at one or more global systemically important banks. Properly audited stablecoins could prove even more resilient, particularly since some of the largest potential issuers have the kind of financial resources which exceed those of all but the very largest banks.

Prices for many tokens are falling, so many traders prefer to sell them so as not to lose their savings. As you know, you have to declare your crypto capital gains when you file your tax return. The taxation of cryptos in France, at least at the beginning of 2022, requires the declaration of profits (as well as losses) made in fiat currency. In other words, when you turn a crypto into a euro, you must declare it.