Popular stablecoins have just had another troubled weekend. Can you trust stablecoins in these market conditions?
Stablecoin protocols finished another bumpy week of increased regulation and scrutiny.
First South Korea. Then Japan.
More and more countries are going after tight crypto regulations that firstly concern stablecoins.
Is it a bad sign for stablecoins? Definitely so.
Let’s take a look at what’s going on. And let’s try to figure out can we trust stablecoins in the near future.
Stablecoins are built on trust
Stablecoins are basically protocols that peg a digital asset to a fiat currency, commodity or a mathematical formula.
They have been the defensive since the collapse of the TerraUSD stablecoin (UST) token in early May.
Stablecoins should be a lower risk than other digital assets. But now they get the extra attention, particularly for algorithm-based stablecoins such as UST.
Last Friday, Japan’s parliament passed a legal framework around stablecoins to protect investors.
This makes Japan one of the first first major economies to pass a stablecoin-specific law.
The legislation, which goes into effect in a year, clarifies the definition of stablecoins as digital money that must be linked to the yen or another legal tender and guarantees holders the right to redeem them at face value.
The bill does not address existing asset-backed or algorithmic stablecoins.
Only licensed banks, registered money transfer agents and trust companies can now issue stablecoins, although Japanese exchanges do not list them.
Not only Japan
The Japanese law is not the first of it kind.
Two weeks ago Korean media announced that South Korean financial authorities would introduce measures to hold crypto exchanges to greater scrutiny following the implosion of UST and the LUNA token behind it.
A two-day National Assembly emergency seminar to discuss the debacle, which may have victimized about 280,000 South Koreans, considered the role of exchanges and law enforcement, among other topics.
“We need to make exchanges play their proper role, and toward that end it is crucial for watchdogs to supervise them thoroughly,” Rep. Sung Il-jong of the ruling People Power Party said.
When exchanges violate rules, they should be legally responsible to ensure that the market functions well without any troubles, he said.
The country’s Financial Services Commission plans to build close ties with law enforcers “to monitor any illegal acts in the industry and protect investors’ rights,” said its vice chair, Kim So-young.