Why Stablecoin Regulation Will Kill Crypto and Benefit Central Banks
All content expressed is purely for entertainment and educational purposes only. This is not financial advice. Do your own research before investing or trading. Views expressed reflect the views of the author and not necessarily reflect the views of CoinFLEX.
There’s been a lot of talk recently regarding stablecoins and their regulation. It’s largely been central banks and they argue that stablecoins aren’t backed by anything, which doesn’t make any sense considering the US dollar isn’t backed by anything but shared value. To buy stablecoins you either have to deposit fiat or crypto assets as collateral, or its value is based on XYZ, like on decentralized exchanges (DEXes). They believe private companies won’t have the reserves necessary to match the amount of stablecoins they print. It’s an interesting stance considering central banks practice fractional reserve banking, where only some of the US dollars they print are backed.
Has there ever been a time before when individual companies could issue dollars, similarly to how companies like Circle or CoinFLEX issue their own dollar-pegged assets? Yes, before the federal reserve was founded in 1913, commercial banks or other licensed authorities were the institutions largely responsible for issuing dollar bills. You could exchange a bank’s dollar for a reserve commodity such as precious metals like gold or silver. In the last century, the authority and responsibility of issuing fiat has largely been transferred up the chain of command to central banks.
There are many questions as to why the Fed wants to regulate stablecoins, and many questions as to why we should accept such regulation. Since the federal reserve was founded by the US industrial elite in 1913, the value of the US dollar has decreased by 99.5%. Why on earth would we want the federal reserve to have the final say on the world’s largest and strongest currency – the US dollar, let alone how we use our stablecoins?
Why Does the Federal Reserve Want to Regulate Stablecoins So Badly?
Well, first of all Fed Chief Jerome Powell argued “you wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital US currency”. “I think that’s one of the stronger arguments in its favor”. We also don’t need amazon for delivery services if you have government postal services like the Royal Mail or the USPS. We also won’t need Uber or Lyft if we have taxis. We choose these private services because they improve our lives by offering freedom of choice that encourages companies to produce better service through competition. Furthermore, 92% of all US dollars are already digital.
One of the reasons Bitcoin was invented was to create a decentralized financial system that we could monitor and have a say in how it operated. The development of Bitcoin has led to a series of events which expanded decentralised finance. DeFi has provided the entire world an access to bank accounts and the ability to trade and invest without needing permission from governments or private companies.
According to Acuant, an identity management company, two billion people do not have access to bank accounts due to the traditional identity verification requirements from credit bureaus. Even if these customers “have some form of identification, they often lack the documentation and credit records required by financial service providers to assess creditworthiness and perform consumer due diligence.” Crypto, and DeFi specifically, provides access to these people as long as they have access to the internet.
The reason why stablecoins are so important is because they provide the necessary liquidity needed to allow the crypto markets to operate smoothly. Regulating stablecoins and increasing the difficulty for them to operate will severely affect DeFi. This will remove your ability to earn passive income through things like automated market making (AMM) products like CoinFLEX’s AMM+, borrowing and lending platforms, or interest-bearing stablecoins that outcompete traditional bank’s APR by orders of magnitude. It destroys any hope of financial freedom, democratization of finance, and development of our financial system.
Yes, we need crypto, and therefore we inherently need stablecoins. What we need more however is the ability to use our assets how we please, without requiring permission from banks to buy something as simple as a bottle of water from a store. DeFi and decentralized exchanges are providing that. Regardless of their efforts, freedom will always win over control.
Centralized exchanges like CoinFLEX understand this and are transitioning to a more decentralized structure, such as decentralizing custody and clearing of funds. This means you have complete control over your money in your account, and taking it out of your account, something you currently can’t do in traditional banking.
CoinFLEX also understands the significance of the products offered in DeFi, and as a result have created their own AMM, AMM+ that outperforms other AMMs by providing the ability to concentrate liquidity in certain prices ranges and connecting the AMM to the perpetual futures market, which offers up to 10x leverage. This means you earn higher returns with less money.
If you are interested in the AMM, join the AMM+ Arena starting August 23rd. The highest earners will be rewarded with FLEX coin! Head to our AMM+ page at www.coinflex.com/AMM to participate!
Author: Adam Diaz