Read the article: In-depth analysis of the status quo and supervision of global stablecoins 2023

PART00** Preface and Introduction** As the financial world becomes increasingly digitized, digital currency has become the center stage of the financial sector.

However, one of the biggest challenges with digital or cryptocurrencies is their volatility. Wider population acceptance of crypto-assets is only possible if volatility is reduced. There are many reasons for volatility, changing public perception, emerging markets, static monetary policy and unregulated markets. In order to solve the problem of volatility, stablecoins came into being.

In recent years, stablecoins have gained a lot of attention due to their ability to combine the advantages of digital currencies and traditional fiat currencies. By maintaining a 1:1 peg to a reserve asset or algorithm, stablecoins bridge the worlds of digital and fiat currencies.

In this report, we cover everything from the rise of stablecoins, four major types, market status, application scale, emerging stablecoin models and stablecoin regulations, regulation.

PART01****The Rise of Stablecoins

1.1 What is a stable currency

Stablecoin is a digital currency linked to reserve assets such as legal tender and gold, as well as a cryptocurrency that circulates freely, is extended on the chain, and is linked to reserve assets.

Stablecoins are designed to reduce price volatility. Stablecoins stand in stark contrast to other cryptocurrencies, including Bitcoin, because they have no built-in mechanism to reduce volatility. Stablecoins resist wild swings by mimicking the likes of the U.S. dollar, euro, Chinese yuan, and Swiss franc.

In 2014, the first stable currency Tether (also known as USDT, Tether) was born, creating a precedent for parity against the US dollar. For example, 1 Tether should be equal to 1 USD. Today, Tether is frequently traded in the field of cryptocurrency, and its trend also proves that its original design is reliable.

In addition to the U.S. dollar, there are other currencies that can be used to measure the value of stablecoins, including fiat currencies (such as the euro), combinations of fiat currencies (such as the IMF’s special drawing rights), commodities or other physical assets (such as gold, real estate), or economic indicators ( such as the inflation rate).

Stablecoins have four key characteristics:

(1) Certification: The certification report is an important part of the stablecoin system, completed by a certified professional service agency, which confirms the existence of the underlying assets supporting the stablecoin;

(2) The nature of reserve assets: a series of high-quality, highly liquid assets are required to ensure the normal operation of a well-designed stablecoin;

(3) Regulation and registration: Stablecoins and the legal entities responsible for their operations must be regulated by a strong regulatory body established in a legally mature and well-governed jurisdiction to reduce the risk of financial crime;

(4) Technology: The effect of a stablecoin depends on the degree of integration of its underlying technology with traditional non-blockchain technologies.

1.2 Classification of Stablecoins According to different stabilization mechanisms, the common stablecoins in the market can be roughly divided into four categories: (1) Fiat-backed stablecoins; (2) Encrypted-backed stablecoins; (3) Algorithm-stable (4) and commodity-backed stablecoins.

1.2.1 Fiat-collateralized stablecoins The most popular stablecoins are backed 1:1 by fiat currency. A central issuer or custodian holds fiat collateral. It must be proportional to the number of stablecoin tokens in circulation. Tether (USDT), USD Coin (USDC) and Binance USD (BUSD) are the largest fiat-collateralized stablecoins by market capitalization.

This type of stable currency has the following characteristics:

First, the centralized issuing agency is usually a private company.

Second, it is linked to legal currency (mostly US dollars), the exchange ratio is generally 1:1, and the issuance mechanism is simple and clear.

Third, implement the reserve proof mechanism. Every time a stable currency is issued, one legal currency reserve must be added.

1.2.2 Crypto-collateralized stablecoins Crypto-collateralized stablecoins are backed by another cryptocurrency as collateral. Instead of using custodians to hold collateral, cryptocurrency-collateralized stablecoins use smart contracts. **The stablecoin issuance process happens on-chain, using smart contracts rather than relying on a central issuer for execution. **When it comes time to buy (mint) these stablecoins, you lock your cryptocurrency in a smart contract to receive an equivalent amount of tokens. Afterwards, you put the stablecoin back into the corresponding smart contract, and you can withdraw your previously locked mortgage amount. DAI, a crypto-collateralized stablecoin, is the most prominent stablecoin in this category.

Cryptocurrency-backed stablecoins need to be over-collateralized to cushion the price fluctuations of the required crypto-backed assets. For example, if you want to buy $100 worth of DAI stablecoins, you need to deposit $180 worth of ETH, which equates to a 180% collateralization ratio. If the market price of ETH falls, but remains above the set liquidation threshold, it also keeps the price of DAI stable due to the excess collateral. However, if the ETH price drops below a set threshold (for example a 100% drop, ETH that was originally worth $180 is now only worth $90). Then according to the smart contract, the collateral will be forcibly sold for liquidation.

1.2.3 Algorithmic Stablecoins Algorithmic stablecoins attempt to maintain a peg to assets such as the U.S. dollar by dynamically expanding and contracting token supply. Algorithmic stablecoins do not use fiat or cryptocurrencies as collateral. Instead, their price stability comes from using specialized algorithms and smart contracts to manage the supply of tokens in circulation. An algorithmic stablecoin system reduces the number of tokens in circulation when the market price falls below the price of the fiat currency it tracks. Alternatively, if the token’s price exceeds the price of the fiat currency it tracks, new tokens enter circulation, adjusting the value of the stablecoin downward.

However, algorithmic stablecoins need to rely on particularly strong algorithms. The USTC involved in Luna is an algorithmic stablecoin, but because their internal algorithms did not take into account some extreme situations, black swans or emergencies occurred, and eventually they broke off the anchor and collapsed.

Algorithmic stablecoins have the following properties:

1. No collateral

2. Mortgage partially or fully backed by original assets

3. Floating stability

1.2.4 Commodity-backed stablecoins

Commodity-backed stablecoins are backed by commodities such as precious metals, oil, and real estate. Gold is the most popular collateral commodity, and Tether Gold (XAUT) and PAX Gold (PAXG) are the top gold-backed stablecoins. Commodity-backed assets allow for investing in assets that may be far from local and inject liquidity into illiquid asset classes.

PART02****Stable currency market status

2.1 Cryptocurrency Market Overview

Global Cryptocurrency Chart (2017-2023)

Total Cryptocurrency Market Cap (2021-2023)

Crypto Market Situation 2021:

In 2021, the cryptocurrency industry will continue to climb to new heights, continuing the momentum of 2020. The market value of the entire industry will increase by more than 3 times in 2021, to about 2.4 trillion US dollars, and the market value of the entire industry will be short-lived in the middle of the year. reached as high as $3 trillion.

Crypto Market Situation 2022:

The total market capitalization of cryptocurrencies for the full year of 2022 is about $830.0 million, down 64% from the beginning of the year.

The start of 2022 for the cryptocurrency market has been bumpy, with events such as high inflation, Russia-Ukraine conflict, and Fed rate hikes in the first quarter. The total market capitalization at the end of the first quarter of 2022 is about 2.2 trillion US dollars. Compared with the prosperity of the first quarter of 2021, traders generally take a wait-and-see attitude in the first quarter of 2022, and the trading volume of the entire market has shrunk significantly. down 23%.

The third quarter of 2022 is a relatively calm quarter, but also a quarter of regulatory turmoil. The market is largely in a state of consolidation, with the total market capitalization of cryptocurrencies briefly hitting $1.2 trillion. The U.S. OFAC sanctions on Tornado Cash have sent shockwaves across the industry and reignited significant concerns and discussions about government censorship. There is also multiple cryptocurrency legislation moving through Congress, and the CFTC's enforcement action against a DAO is particularly noteworthy. As policymakers and regulators continue to grapple with the industry, one can only hope for greater regulatory clarity going forward. Given global geopolitical tensions and macroeconomic turmoil, the near-term outlook for cryptocurrencies may still look challenging, to say the least.

The 2022 crash of FTX and Alameda Research delivered the final blow to the market, costing millions and leaving the industry still reeling from the knock-on effects.

Crypto Market Situation 2023:

Crypto markets shake off the bear market slump. The first half of the first quarter of 2023 was relatively quiet as traders speculated on the direction of the Fed's attitude. While overall liquidity is relatively low, the market is also driven by some ephemeral narratives. Such as Hong Kong concept, brc20, Al plate, etc.

Crypto's regulatory challenges cannot mask the larger turmoil in the traditional banking industry: doubts surrounding Silvergate Bank led it to enter bankruptcy liquidation on March 8, 2023, triggering contagion effects across the US banking industry. Within the same week, Silicon Valley Bank was taken over by the FDIC, followed by Sianature Bank, which in turn led to CreditSuisse Bank being bought by UBS a week later with the backing of government funding. Events such as these have exposed the fragility of investors' trust and confidence in traditional finance.

2.2 Stablecoin Market Overview

2.2.1 Total market value of stablecoins

△The total market value of stablecoins (coingecko)

As one of the core assets of the entire encryption market, stablecoins have experienced very substantial growth in recent years. As of May 12, 2023, the total market cap of stablecoins is approximately $131.8 billion.

△Top9 stablecoin market value chart (coingecko)

2021 Stablecoin Market Situation:

Stablecoins rallied to new highs and reached a market cap of $105.1 billion (+76%) in Q2 2021, but volume dropped to $7.36 billion (-35%). This may be because traders have opted for safety during the 20% market downturn.

In the third quarter of 2021, the overall market capitalization of the top five stablecoins grew steadily at a rate of 17%. At the end of the quarter, the overall market capitalization of stablecoins reached $123 billion. Except for USDT, the growth rate of the top five stablecoins all exceeds 20%, which means that investors choose to use other stablecoins as alternatives to USDT in the face of strong regulation.

2022 Stablecoin Market Situation:

Stablecoins will not be spared the net outflow of assets in 2022, with a cumulative outflow of US$27.3 billion (about 17%). The bulk of this loss occurred during Terra's crash, and the sector has performed relatively well since then, despite periodic "dark rumors" of possible unanchoring.

The uncertainty of the general environment in the first quarter of 2022 has made most investors prefer stablecoins, and the market value of stablecoins has increased significantly this quarter (+$23 billion). Unlike other digital currencies in the market in the first quarter of 2022, the top five stablecoin markets grew by 13%.

What to watch in the second quarter of 2022 is that stablecoins have improved significantly during this period, with BUSD, previously ranked 13th, reaching 6th place. However, the small decline in the market share of stablecoins (not considering USTC) indicates that a certain amount of funds have completely withdrawn from the cryptocurrency ecosystem. Enter the stable currency market in order to reduce risks under certain circumstances.

In 2022, the market value of USDT, the largest stable currency, has dropped by 16%, which is about 12 billion US dollars. On the contrary, USDC and BUSD each have a certain growth rate, each about 2 billion US dollars. The top decentralized stablecoins DAI (-43%) and FRAX (-44%) have similar losses, but in absolute terms, DAI's loss of $4 billion is almost five times that of FRAX.

2023 Stablecoin Market Situation:

In the first quarter of 2023, the market value of the top 15 stablecoins decreased by about 4.5%, or $6.2 billion. This is due to panic in the stablecoin market after the US Securities and Exchange Commission (SEC) investigated the decoupling of BUSD and USDC.

USDC will see the largest decline in market share in Q1 2023 (-2.7%), possibly due to uneasy holders during the decoupling of stablecoins during the banking crisis.

After Paxos decided to stop issuing the stablecoin, BUSD's market capitalization ranking dropped sharply from 7th to 12th.

Due to decoupling and regulatory concerns, USDC and BUSD have seen massive outflows, while USDT and TUSD have been the biggest beneficiaries.

Stablecoin markets have panicked after the U.S. Securities and Exchange Commission (SEC) investigated the decoupling of BUSD and USDC. The largest stablecoin by market cap, USDT (+20.5% or $13.6 billion), gained the most in absolute terms, while USDC and BUSD lost 26.9% and 54.5%, respectively. The growth of TUSD was largely caused by massive new minting on Binance (~$130 million) and Tron (~$750 million).

2.2.2 Market Share of Stablecoins

As of May 12, 2023, there are 24,071 encrypted digital currencies in the world, with a total market value of 1.117 billion US dollars, and the total market value of stable coins is approximately 131.8 billion US dollars, accounting for approximately 11.84% of the encrypted digital currency market.

As of May 2023, the market share of centralized stablecoins has reached 94%, while the market share of decentralized stablecoins is only about 6%. In the period from 2019 to 2022, the market share of decentralized stablecoins will increase significantly. However, after Terra collapsed, UST quickly returned to zero, and the share of decentralized stablecoins gradually decreased.

△Comparison chart of major stablecoins

△Comparison of Stablecoin Shares (Coinmarketcap)

As can be seen from the above figure, in the stablecoin market, the top nine stablecoins by market value account for more than 97% of the market share. The top five stablecoins accounted for more than 96%, namely Tether USDT, USD Coin USDC, Binance USD BUSD, DAI and TrueUSD TUSD. The above three stablecoins account for more than 90% of the entire stablecoin market. From the perspective of the types of stablecoins, USDT, USDC, and BUSD are all centralized stablecoins, and they are all issued with real asset mortgages; , as well as decentralized stablecoins, such as the well-known DAI issued by MarkerDAO with a market value of 4.86 billion US dollars, accounting for only 3.73%.

2.2.3 Comparison of Existing Major Stablecoins

△Main stablecoin comparison chart (TokenInsight20)

PART03****Classified Application of Stablecoins

3.1 Centralized Stablecoins The total market value of centralized stablecoins exceeds US$129.4 billion, of which USDT and USDC are the two largest centralized stablecoins. Both are pegged to US$1, and the reserve assets are US dollar cash, treasury bonds or other commercial paper. USDT, USDC, BUSD, TUSD, USDP, GUSD are the six most popular centralized stablecoins that are also asset reserve-backed stablecoins.

3.1.1 Tether USDT：

In October 2014, Tether (a subsidiary of iFinex) launched USDT. USDT is currently the largest stablecoin on the market with a market cap of over $82.7 billion.

USDT operating mechanism:

As can be seen from the above figure, the USDT issuance and circulation process can be divided into the following steps:

Step 1: The user deposits USD into the Tether company's bank account.

Step 2: The Tether company creates a Tether account for the user, and puts the digital currency corresponding to the US dollar deposited in the account.

Step 3: Users can trade USDT through exchanges or over-the-counter markets.

Step 4: The user returns the USDT to Tether to redeem the fiat currency.

Step 5: Tether destroys the USDT and returns the USD to the user's bank account. In addition, when USDT enters the circulation field, any investor can buy and trade USDT from other investors or exchanges. This forms a complete circular chain of issuance, transaction, circulation and recycling.

USDT operation status:

Price Analysis:

At the time of issuance, investors need to exchange one USD for one USDT; in the secondary market, investors can use other encrypted digital currencies to exchange USDT, and can also use legal tender to purchase USDT. When the actual price of USDT exceeds one dollar, a large number of investors will purchase USDT from Tether, and then sell it in the secondary market; when the actual price of USDT is lower than one dollar, a large number of investors will buy USDT from the secondary market, and then sell to Tether company redeems USD. In either case, in theory, the price of USDT will gradually return to one dollar, or fluctuate slightly around one dollar.

△USDT price chart (2021-2023)

USDT has always been "notorious" for "not having enough reserves", but even if it is considered so by the market, USDT still maintains the number one market share, and the price can remain around $1 most of the time.

The most serious USDT price unanchoring occurred on October 15, 2018, when the price of Bitcoin was around $6000. The price of USDT fell to a minimum of $0.88 due to market panic. But since then, the price of USDT has been able to remain stable despite constant market rumors.

△2021-2023 USDT market value and trading volume (coingecko)

OFAC's sanctions have caused some damage to USDC's status. The overall stablecoin market will perform flat in the third quarter of 2022, and USDT will see a slight increase (it may absorb some of USDC's sell-off). In the first quarter of 2023, after the US Securities and Exchange Commission (SEC) investigated the decoupling of BUSD and USDC, there was a panic in the stablecoin market, and the stablecoin USDT (+20.5% or $13.6 billion) with the largest market value increased the most in absolute terms.

USDT Reserve Assets:

Tether’s USDT white paper explicitly mentions that Tether tokens are called stablecoins because they provide price stability when pegged to fiat currencies. This provides a low volatility solution for traders, merchants and funds when withdrawing money from the market. All Tether tokens are pegged 1:1 to matching fiat currencies and are backed 100% by Tether's reserves.

But there are two prerequisites for this mechanism to be effective:

First, the company strictly implements USDT and USD 1:1 reserves.

Second, the company regularly conducts audits and makes public the results of the audits. The proof-of-reserve mechanism is the core mechanism to ensure the relatively stable price of stablecoins. However, if the company cannot realize the 1:1 reserve commitment, the anchoring relationship between stablecoins and fiat currencies will be challenged.

Tether's official website gives the current balance sheet of the USDT project. As can be seen from the figure below, Tether's total assets (Total Assets) represent the company's US dollars, euros (EUR), offshore renminbi (CNH), Gold (XAU) and Mexican Peso (MXN); Total Liabilities (Total Liabilities) represents how much money investors spend to buy this stable currency after the company issues USDT, which are about 82.8 billion US dollars, 36.38 million euros (EUR), 20.5 million Offshore Chinese Yuan (CNH), 20,000 XAU, and 19.56 million Mexican Pesos (MXN). Judging from the project balance sheet, the Shareholder Equity (Shareholder Equity) is all positive, which means that the company has achieved an increase of one dollar worth of legal currency reserves for every USDT issued.

△ USDT balance sheet 2023.5.14 (Tether official website)! )

△ EUR balance sheet 2023.5.14 (Tether official website)! )

△ CNH balance sheet 2023.5.14 (Tether official website)! )

△ XAU balance sheet 2023.5.14 (Tether official website)

△ MXN balance sheet 2023.5.14 (Tether official website)

Tether announced the audit results of the accounting firm: (as of March 31, 2023)

3.1.2 USD Coin（USDC）

In July 2018, USDC is a USD stablecoin jointly issued by Circle and Coinbase. From the background, USDC seems to be a more stable and transparent stable currency, and the market has always trusted USDC. The current market value of USDC is about 30.1 billion US dollars, ranking second in the stable currency market, and its size is about half that of USDT. The market value of USDC at its peak on July 1, 2022 exceeded US$56 billion, which was close to USDT's US$66 billion level at that time.

USDC operating mechanism:

Customers joining through a stablecoin portal (such as a web application created and maintained by a licensed CENTER Token Issue member) can transfer fiat funds into the account of that CENTER Issuer. Issuers use the CENTER network to execute a series of commands to verify, mint and validate fiat tokens pegged to the value of these deposited funds. Customers can then transfer these tokens elsewhere to spend them.

Redemptions follow the reverse order: fiat tokens are destroyed when a customer accesses an outlet, such as a web application maintained by a licensed CENTER issuing member. Funds from the underlying fiat reserve are transferred to the client's external bank upon successful verification and verification.

USDC operation status:

△USDC price chart (2021-2023)

△ USDC market value and trading volume (CoinGecko)

Coinbase and DeFi protocols have always been much friendlier to USDC than USDT, which is one of the reasons why USDC will expand rapidly after 2021.

In the third quarter of 2022, USDC's market value decreased by $8.8 billion, accounting for 16% of its market value. This is due to regulatory turmoil. OFAC's sanctions on Tornado Cash have impacted the entire industry and re-triggered major concerns and discussions about government censorship. OFAC's sanctions have also caused certain damage to the status of USDC.

USDC has the largest drop in market share (-2.7%) in Q1 2023, possibly due to unnerved holders of stablecoins during the banking crisis, and USDC lost 26.9% due to the SEC ( After the SEC) investigated the decoupling of USDC, there was a panic in the stablecoin market. The price of USDC dropped to a minimum of around $0.8 on March 11, 2023. This was due to the bankruptcy of Silicon Valley Bank, and USDC's reserves were questioned.

USDC Reserve Assets:

Circle is required to maintain a full fiat reserve for all issued USDC. These holdings are reported monthly by third parties in accordance with standards set by the American Institute of Certified Public Accountants (AICPA).

Circle published the audit results of the accounting firm (as of March 6, 2023):

3.1.3Binance USD（BUSD）

In September 2019, Paxos (the issuer) cooperated with Binance to launch BUSD, which is a fiat currency-backed stablecoin pegged to the U.S. dollar. It can be purchased and redeemed at the exchange rate of 1 BUSD to 1 U.S. dollar. It is currently the seventh largest by market value Cryptocurrency and the third largest stablecoin.

BUSD is a more centralized stablecoin than any stablecoin, want to fully understand why. We need to make it clear that there are two types of BUSD in the market:

1. The BUSD issued by Paxos on Ethereum is regulated by the New York Department of Financial Services NYDFS;

2. Binance-Peg BUSD issued by Binance on other chains (BNB chain). This category of BUSD is not subject to any regulation. Binance issues its own Binance-Peg BUSD by holding BUSD on Ethereum.

BUSD operating mechanism:

To maintain its $1 value, Paxos holds an amount of USD equal to the total supply of BUSD. BUSD and USD can be exchanged through Paxos at any time.

1. The user sends USD to the Paxos bank reserve account.

2. The issuer (Paxos) creates an equivalent amount of BUSD on Ethereum.

3. The newly minted BUSD is delivered to the user, while the USD is deposited in the bank reserve account.

4. The mechanism also always works in reverse. Users can use Paxos to burn BUSD and get $1 in return.

By using smart contracts to burn/mint BUSD, this mechanism can keep the ratio of supply and reserve at a constant 1:1.

BUSD operation status:

Everything about the development of BUSD is going very smoothly, especially since the 2021 market and the frenzy of the BNB chain

In September 2022, Binance announced that it will automatically convert user balances and newly recharged USDC, USDP, and TUSD into BUSD. Circle CEO says this is a good thing.

In 2023, Circle will report to the New York Department of Financial Services that there is a problem with the BUSD reserve:

In January, Binance admitted that BUSD had a reserve management flaw.

In February, BUSD issuer Paxos was investigated by the New York Department of Financial Services, and BUSD began to have outflows of funds. The SEC then planned to sue Paxos, claiming that BUSD was an unregistered security. On the 13th, BUSD was announced to stop issuing.

On February 13, Binance CEO Changpeng Zhao stated that BUSD will no longer be the main trading currency on Binance

On February 28, Coinbase announced that it will stop BUSD trading starting from March 13.

In March, AAVE DAO voted to remove BUSD from its lending platform.

△BUSD price chart (2021-2023)

△ BUSD market value and trading volume (CoinGecko)

Despite starting from a low base, the circulating supply of BUSD increased by approximately 250% in the first quarter of 2021 respectively. This is most likely caused by the rise of the BSC and Terra public chains.

In the first quarter of 2023, the situation of BUSD went from bad to worse, especially after the SEC sent a Wells Notice to Paxos regarding the issuance of BUSD in mid-February, Paxos finally decided to stop issuing BUSD. Aggressive enforcement actions by U.S. regulators have made it more challenging for the crypto industry to thrive in an opaque regulatory environment, while also fueling greater calls for regulatory transparency. BUSD dropped from No. 7 to No. 12 by market capitalization after Paxos decided to stop issuing the stablecoin. After the U.S. Securities and Exchange Commission (SEC) investigated the decoupling of BUSD and USDC, the stablecoin market panicked, with BUSD losing 54.5%.

Since the announcement of the cessation of operations in February 2022, the market value has dropped rapidly as users continue to cash out. BUSD has lost 47.3% or $6.8 billion in market capitalization in the first quarter of 2023, a 67.6% drop from its November 2022 peak. As of mid-May 2023, there is still $5.7 billion worth of BUSD in circulation in the market.

BUSD Reserve Assets:

Each Paxos Standard bank account is overseen by US audit firm Withum, and Paxos publishes its monthly BUSD reserve report.

3.1.4TrueUSD（TUSD）

In March 2018, Archblock (the issuer) launched TrueUSD and listed it on the Bittrex exchange. TrueUSD (TUSD) is a fully collateralized, legally protected and transparently verified ERC-20 token. It is pegged 1:1 to the US dollar. Additionally, it is the first crypto asset built on the TrustToken platform. It aims to be a simple, transparent and reliable stablecoin. Therefore, it does not use hidden bank accounts or any special algorithms.

TUSD operating mechanism:

TrueUSD's USD holdings are spread across various bank accounts belonging to different trust companies. The parties involved have signed an agreement to publish collateral assets daily and conduct monthly audits. The token uses multiple escrow accounts to reduce counterparty risk and provide holders with legal protection against theft.

TrustToken uses publicly audited smart contracts to limit itself to issuing tokens. The money never even touched the hands of the TrustToken team. When the escrow account receives USD, new TUSD will be generated automatically. Whenever a user redeems USD, an equivalent amount of TUSD is instantly destroyed. In this way, TrustToken ensures a 1:1 USD to TUSD ratio between funds held in escrow accounts and TUSD in circulation.

TrueUSD has the following characteristics:

1. Legal protection: The company regularly issues certificates, which are protected by strong legal protection provided by escrow accounts.

2. Convertible to USD: Any individual or organization that has passed the AML/KYC inspection on the TrustToken platform can convert TUSD into USD. However, the minimum withdrawal amount is $10,000.

3. Trustworthy fund management: The way the TrueUSD system is set up allows you to exchange dollars directly with the escrow account by design, rather than remitting money through the TUSD network.

4. Full Collateral: A single TUSD token is always collateralized by USD held by the escrow account company. New tokens are minted and burned by publicly audited smart contracts.

5. Periodic certificates: All holdings of escrow accounts are subject to periodic certificates published publicly.

Critical to the proper functioning of every TrustToken tokenized asset is an escrow account. Everyone who passes KYC and AML requirements can buy/redeem TrueUSD using their app.

TUSD operation status:

Effective October 7, 2022, TUSD has been granted legal status in the Commonwealth of Dominica as an authorized digital currency and medium of exchange.

△TUSD price chart (2021-2023)

The growth rate of TUSD (+169.3%) in the first quarter of 2023 (exceeding FRAX +2.6%). Much of TUSD's growth was caused by massive new minting on Binance (~$130 million) and Tron (~$750 million).

△ TUSD market value and trading volume (CoinGecko)

TUSD Reserve Assets:

Through a partnership with leading US accounting firm Armanino, TrueUSD holders can view a real-time dashboard of their TrueUSD account, a great example of high transparency.

3.2 Decentralized stable currency

Decentralized stablecoins are managed by designated communities and stabilized by computing protocols. There are four types of decentralized stablecoins, namely over-collateralized stablecoins, algorithmic stablecoins, fractional stablecoins, and non-pegged stablecoins.

One thing that decentralized stablecoins have in common is that they are guided by multiple points of control, rather than a single body as seen in centralized stablecoins. The issuance and distribution of centralized stablecoins is controlled by a central authority, and the peg of the coins is maintained by actual fiat currency or other commodities such as gold, oil and real estate.

Decentralized stablecoins differ in two ways: governance and peg system. The governance systems of different types of decentralized stablecoins are similar, therefore, decentralized stablecoins are grouped according to their minting and peg maintenance schemes. Here are two popular decentralized stablecoins:

3.2.1MakerDAO(DAI)

In December 2017, MakerDAO launched DAI. Unlike USTD, DAI exists entirely on the blockchain, avoiding credit risks that may arise from third-party trust intermediaries.

DAI operating mechanism:

The barriers to generation, access, and use of DAI are low. Users generate DAI by using the Maker protocol to create a smart contract called the "Maker Vault" and deposit assets (approved collateral). This process is not only the process of DAI entering the circulation field, but also the process of users obtaining liquidity. In addition, users can also buy DAI from intermediaries or exchanges.

Think of MakerDao as a pawn shop, you can mortgage your digital assets (currently only supports MKR) on the MakerDao system to get a certain amount of DAI. It is conceivable that this mortgage contract is the function of this system contract. This important function is called: Vault (called CDP before the multi-collateral system migration) smart contract. This contract allows you to borrow DAI in the MakerDao system, and the loan can be reinvested (leverage), international remittance, etc. It should be noted that when your mortgaged digital currency depreciates rapidly and you are unable to repay the DAI loan, your digital currency will be forcibly auctioned and turned into DAI to repay the loan. This is what we commonly call liquidation.

DAI Stability Mechanism:

The initial goal of DAI is to maintain a 1:1 anchor with the US dollar, but because market behavior will cause a certain price difference, relevant mechanisms are needed to stabilize the price of DAI. The price stabilization mechanism mainly relies on interest rate adjustment and liquidation. The interest rate adjustment is carried out through governance voting, including stable interest rate adjustment and DAI savings rate (DAI Saving Rate—DSR) adjustment; liquidation is mainly an emergency shutdown method to control risks.

1. Stable interest rate adjustment: It refers to the annualized interest rate that users need to pay when mortgaging assets to generate DAI, which is essentially loan interest. When the price of DAI is higher than $1, users are encouraged to create Vaults to generate DAI by reducing the stable rate (that is, reducing loan interest); when the market price of DAI is lower than $1, the stable rate is increased (that is, loan interest is increased) This will stimulate users to close the Vault, destroy DAI, and reduce the market supply of DAI.

2. DAI deposit rate (DSR) adjustment: Users can lock DAI into the DSR contract of the Maker agreement to automatically obtain savings income. DSR determines the amount of income that DAI holders can obtain based on their deposits. DAI deposit interest is paid by borrow interest, meaning deposit interest is secured by a stability fee. For the Maker agreement, if the income from the stability fee cannot make up for the total expenditure of DAI deposit interest, then the difference is the bad debt of the system, which will be made up by issuing additional MKR, which means that MKR holders are the risk bearers of this part.

3. Emergency shutdown: It is the last resort to ensure that the target price of DAI holders can be redeemed in case of emergency. Once the emergency shutdown is triggered, users will no longer be able to create new vaults or operate existing vaults. Mechanisms are also frozen.

DAI operation status:

△ DAI market value and transaction volume (CoinGecko)

In the first quarter of 2022, the growth rate of DAI also slowed down a lot due to similar competition; in the second quarter of 2022, the market value of DAI fell by 32%, which may be caused by their negative correlation with algorithmic stablecoins; in the first quarter of 2023, DAI Basically remained steady.

3.2.2 FRAX

In December 2020, FraxFinance launched FRAX, the first and only stablecoin project whose supply is partially collateralized and partially algorithmically backed. FRAX is a dual-type seigniorage model, and its stablecoin FRAX is backed by two types of collateral, namely the mortgage-backed stablecoin (USDC) and FRAX Share (FXS).

FRAX operation stability mechanism:

In the initial state, FRAX is in the 100% collateral stage, which means that FRAX can be minted only by placing collateral in the minting contract, and 100% of the value put into the system to create FRAX is collateral. As the protocol enters the mixing phase, a portion of the value that enters the system during minting becomes FXS (and then burned during circulation). For example, at a collateral ratio of 98%, each minted FRAX requires $0.98 in collateral and burns $0.02 worth of FXS. At a collateral ratio of 97%, every FRAX minted requires $0.97 in collateral and burns $0.03 worth of FXS, and so on.

While the FRAX protocol is designed to accept any type of cryptocurrency as collateral, the implementation of the FRAX protocol will primarily accept on-chain stablecoins as collateral to eliminate collateral volatility, allowing FRAX to transition smoothly to more algorithmic ratios .

The redemption process of FRAX is seamless, easy to understand, and economically reliable. At the 100% staked stage, it's pretty simple. During the mixing algorithm phase, when FRAX is created, FXS is burned. FXS are minted when FRAX is redeemed. As long as there is a demand for FRAX, redeeming it as collateral plus FXS will start minting a similar amount of FRAX into circulation on the other end (burning the same amount of FRAX).

At the very beginning, the FRAX protocol adjusted the mortgage rate every hour, and each adjustment was 0.25%. The function decreases the collateral ratio every hour when the FRAX price is at or above $1, and increases the collateral ratio every hour when the FRAX price is below $1. This means that if the FRAX price is at or above $1 for most of a certain period of time, the net change in the collateral ratio will be reduced. If the FRAX price is below $1 most of the time, the collateral ratio will increase towards 100% on average.

FRAX has the following characteristics compared with UST (2022.2.9 unanchored, Terra collapsed):

1. Flexible mortgage rate, FRAX automatically realizes the mortgage rate through the proportional integral derivative (PID) controller, FRAX redeploys the collateral to other places to earn income, which helps to bring in external income and through its algorithmic market operation The controller keeps the protocol floating.

2. Transfer the speculation on FRAX to FXS. Due to the destruction/repurchase mechanism of FRAX, its price volatility has been transferred to FXS.

3. Reliable collateral, part of FRAX's collateral is USDC (reserved in USD cash reserves), which injects changes in the growth rate.

4. FXS provides value beyond governance, such as minting requirements and protocol fees, thereby incentivizing users to purchase FXS.

FRAX operation status:

△ FRAX market value and trading volume (CoinGecko)

FRAX is developing rapidly in 2021, with a market value of more than $100 million. This also reflects the increasing market acceptance of algorithmic stablecoins. The 48% drop in FRAX market capitalization in Q2 2022 may be caused by their negative correlation with algorithmic stablecoins; FRAX remains largely flat in Q1 2023.

3.3 New Stable Coins

According to Sam Kazemian's "DeFi Trinity" theory, in order to achieve DeFi dominance, a project needs its own stablecoin, decentralized exchange (DEX), and lending protocol.

Some of the largest protocols have already started building in this direction, developing their own DEXs and lending protocols alongside stablecoins. Unsurprisingly, FRAX has already taken its first steps, introducing Fraxswap and Fraxlend to supplement its own stablecoin, and other protocols are quickly catching up. Ongoing issues surrounding centralized stablecoins, such as the risk of regulatory scrutiny — particularly the recent close of BUSD — have only accelerated efforts to build a truly decentralized stablecoin model.

The market is eagerly anticipating the launch of protocol-native stablecoins by the two largest DeFi protocols, Curve's crvUSD, and AAVE's launch of GHO in 2023. Both will have their own novel designs based on their respective underlying protocols, and more importantly, they will have features that strengthen their respective flywheels.

In addition to protocol-native stablecoins, other stablecoin models are still experimental. USDD (USDD) continues to represent an endogenous collateralized stablecoin, backed by multiple tokens including BTC, USDT, and USDC. Projects like Rai and Olympus are trying to create a stablecoin that is not actually pegged to fiat currency. Ampleforth is probably the most interesting - a pure rebase stablecoin with no collateral.

PART04****Growth Potential and Use Cases of Stablecoins

4.1 Growth Potential of Stablecoins

1. Solve the problem of digital currency price fluctuations

Stablecoin is a digital currency issued with assets as collateral, and its price is more stable than other digital currencies. Therefore, stablecoins can be used to solve the problem of digital currency price fluctuations. For example, when you buy goods with Bitcoin, due to the large fluctuations in the price of Bitcoin, the price you need to pay when purchasing may increase or decrease due to price fluctuations, which increases the uncertainty of the transaction. But if stablecoins are used for transactions, this situation can be avoided due to their relatively stable prices.

2. Can undertake financial functions

Stablecoins have all the functions of general digital currencies, such as payment, storage, etc., and can also undertake some financial functions, such as payment of handling fees, as an exchange rate conversion medium, etc.

3. More transparent market transactions

Stablecoins are usually issued by institutions, and the collateral preparation process also needs to be audited, which increases the transparency of market transactions and provides more protection.

4.2 Use Cases for Stablecoins

Legal Currency Exchange Channel

It can be seen from the USDT issuance and circulation process that investors can purchase USDT from Tether or from other investors. When investors want to exchange legal currency, they can redeem it from Tether.

act as a medium of exchange

Many digital currencies also have obstacles in the process of exchanging with mainstream digital currencies such as Bitcoin. Therefore, users can first convert other digital currencies into USDT, and then convert them into Bitcoin for transactions.

act as a safe-haven asset

USDT promises that users can convert USDT into legal currency at any time. Therefore, when the price of the digital currency market fluctuates violently, investors can first convert the digital currency they hold into USDT to preserve the value of their assets. After the market price stabilizes, they can exchange it back to other digital currencies. currency.

for funds disbursement

USDT can be used as a means of fund payment, especially in cross-border payment scenarios. At present, global cross-border payments use the SWIFT system, and international transfers take 3-7 days, and the cost is relatively high.

PART05****Stable currency regulations and global supervision

5.1 Stablecoin Regulations

After major setbacks like the Terra/UST debacle and the FTX debacle, many investors suffered significant losses and governments and regulators were forced to act. While legislative and regulatory work was already underway, the widespread contagion has added urgency and speed to these efforts. Specifically, stablecoins have been an area of particular focus.

International standard-setting bodies such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BSBC) have developed initial regulatory standards for digital assets in an attempt to drive consistent regulation across the globe. On the other hand, the Bank for International Settlements (BIS) has been conducting surveillance and surveillance, deploying a project that will allow central banks to effectively monitor stablecoin balance sheets.

The U.S. Congress has proposed a stablecoin bill, and individual countries are also working with the U.S. and others to address the issue. How the Monetary Authority of Singapore (MAS) allows industry participants to develop an overall regulatory framework for stablecoins, and the regulatory framework issued by the Hong Kong Monetary Authority (HKMA) requires stablecoin issuers to obtain operating licenses, and may even prohibit the regulation of algorithmic stablecoins will be more common.

5.2 Whether the stable currency is regulated

Stablecoins have attracted the interest of regulators around the world due to their unique combination of fiat and cryptocurrencies. Since they are designed to maintain a stable price, they can be used for reasons other than speculation and can facilitate low-cost international high-speed transactions. Some countries are even trying to create their own stablecoins. Issuing stablecoins with fiat reserves may also require regulatory approval and may be subject to the same regulations as cryptocurrencies in local jurisdictions.

5.3 The latest developments in the regulation of stablecoins in major countries around the world

At present, major countries and regions around the world have different regulatory stances on encrypted assets (including stablecoins), and the corresponding regulatory frameworks and legislation are at different stages. The following is a brief introduction to the latest developments in Hong Kong, Mainland China, the United States, Singapore and the European Union, hoping to provide readers with some general reference and guidance on the supervision of the following countries and regions.

5.3.1 Hong Kong, China

On January 12, 2022, the Hong Kong Monetary Authority released a discussion paper on extending the Hong Kong regulatory framework to stablecoins, inviting the industry and the public to provide opinions on the regulatory model for encrypted assets and stablecoins. The discussion paper sets out the Hong Kong Monetary Authority's thinking on the regulatory model for encrypted assets, especially stablecoins used for payment purposes. The Hong Kong Monetary Authority is expected to draw up plans by July 2023 to enact the new regulatory regime by 2023/2024.

The Hong Kong Monetary Authority believes that stablecoins are increasingly seen as a widely accepted payment method, and the fact that their usage has grown increases the potential for stablecoins to integrate into the mainstream financial system. In the view of the Hong Kong Monetary Authority, this will trigger broader monetary and financial stability implications, making stablecoins a supervisory focus of the Monetary Authority.

The Hong Kong Monetary Authority issued the "Consultation Conclusions of the Encrypted Assets and Stablecoin Discussion Document" in January 2023, summarizing the industry's feedback on the Hong Kong Monetary Authority's consultation on stablecoins from all walks of life a year ago and the Monetary Authority's corresponding position. The main contents of the consultation conclusion are as follows:

1. Key regulatory scope

The Hong Kong Monetary Authority has said it will give priority to regulating stablecoins that claim to be anchored to fiat currencies. Whether it is anchored to fiat currency through algorithms or arbitrage mechanisms, and regardless of whether the stablecoin is mainly used for retail, wholesale or encrypted asset transactions, as long as it is a stablecoin that claims to be anchored to fiat currency, it will be included in the regulatory focus.

2. Stablecoin Jurisdiction

In the conclusion of the Hong Kong Monetary Authority, the Hong Kong Monetary Authority pointed out that the mandatory licensing system for stable currency activities may overlap with the current license system for virtual asset service providers managed by the Hong Kong Securities Regulatory Commission, and stated that it will further consult other regulatory agencies. , to consider how to avoid regulatory arbitrage in the future.

3. License application

The conclusion of the Hong Kong Monetary Authority clarified the mandatory license requirements for engaging in various types of stablecoin-related activities, and stated that licenses are issued based on different types of stablecoin activities, including (1) Governance: rules for establishing and maintaining regulated stablecoins, For example, the ownership structure and operating arrangements of stablecoins; (2) issuance: issue, create or destroy regulated stablecoins; (3) stability: make arrangements for the stability and reserve assets of regulated stablecoins (regardless of the and other arrangements are provided by the issuer itself), including maintaining the value of the stable currency in an effective manner; (4) Wallet: providing a service for storing the user's private key, enabling users to use and manage the regulated stable currency they hold .

It is worth noting that the same entity needs to obtain different licenses for different types of stablecoin activities. As far as stablecoin issuance activities are concerned, both banks and non-bank institutions approved by the Hong Kong Monetary Authority can be stablecoin issuers.

4. Algorithmic stablecoins

The Hong Kong Monetary Authority stated that no matter whether it is a stablecoin anchored to a legal tender through an algorithm or an arbitrage mechanism, and regardless of whether the stablecoin is mainly used for retail, wholesale or encrypted asset transactions, as long as it is a stablecoin that claims to be anchored to a legal tender, it will be included. Regulatory focus. One of the conditions listed in the Hong Kong Monetary Authority's conclusions for the issuance of stablecoin licenses is that the value of the reserve fund of the relevant stablecoin should always match the number of issued stablecoins, and the reserve assets should be of high quality and high quality. fluidity. Algorithmic stablecoins do not meet the above requirements. Therefore, entities engaged in activities related to algorithmic stablecoins do not meet the licensing requirements of the Hong Kong Monetary Authority. After the official launch of the stablecoin license system, how should entities that already provide algorithmic stablecoin-related services respond, such as whether they need to gradually close or adjust their services to Hong Kong, and whether existing Hong Kong users can continue to use algorithmic stablecoins deserves further attention.

5. The localization requirements of license applicants, and whether stablecoins that are linked to non-national/regional legal currencies are allowed

In the HKMA's conclusions, the HKMA believes that requiring licensing entities to "incorporate in Hong Kong" is conducive to the supervision of licensed entities and the enforcement of regulatory requirements. This requirement enables the segregation of assets relating to the regulated business from the assets and liabilities of other entities within the licensed entity's group and facilitates the seizure of their assets should the need arise. Nevertheless, the Hong Kong Monetary Authority also stated in its conclusion that it will refer to the regulatory developments in other countries or regions and the opinions of the industry to further evaluate whether it can adopt other measures to replace the "in Hong Kong Incorporation of a company” requirement. Whether entities established outside Hong Kong can obtain stablecoin business-related licenses in Hong Kong remains to be further clarified by the Hong Kong Monetary Authority.

6. Key Points of Regulations

(1) Comprehensive regulatory framework: Regulatory requirements should cover a wide range of issues, including but not limited to ownership, governance and management, financial requirements, risk management, AML/CFT, user protection, and periodic audit and disclosure requirements.

(2) Full backing and redemption at face value: The value of the reserve assets of a stablecoin arrangement should always match the value of the stablecoins in circulation. Reserve assets should be of high quality and high liquidity. Stablecoins that gain value based on arbitrage or algorithms will not be accepted. Holders of stablecoins should be able to convert their stablecoins at par to the reference fiat currency within a reasonable period of time.

(3) Main business restrictions: Regulated entities are not allowed to engage in activities different from the main business permitted by their relevant licenses. For example, wallet operators should not engage in lending activities.

In addition, according to Hong Kong's "Securities and Futures Ordinance", unless there are specific exemptions, conducting regulated activities related to "securities" (such as securities transactions, providing services for securities transactions, providing advice on securities, etc.) requires prior Hong Kong License issued by the Securities Regulatory Commission. Therefore, before conducting stablecoin-related businesses, specific analysis and judgment should be made on whether the involved stablecoins fall within the scope of “securities” under the regulations. If the stable currency involved constitutes the scope of "securities" under the Securities and Futures Ordinance, the business related to the stable currency will be deemed to be regulated activities, and it is necessary to obtain the corresponding license issued by the Hong Kong Securities Regulatory Commission in advance.

4.3.2 Mainland China

Mainland China's regulatory policy on encrypted assets began on December 5, 2013 with the "Notice on Preventing Bitcoin Risks" issued by the People's Bank of China and other five ministries and commissions. On September 4, 2017, seven ministries and commissions including the People's Bank of China issued the "Announcement on Preventing Financing Risks of Token Issuance", namely the 94 ban. The announcement clearly stipulates that any organization or individual shall not illegally engage in the exchange business between legal tender and tokens, "virtual currency", shall not buy or sell tokens or "virtual currency" as a central counterparty, and shall not be a token or "virtual currency" "Virtual currency" provides pricing, information intermediary and other services.

On September 24, 2021, ten ministries and commissions including the People's Bank of China issued the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions", namely the 924 Notice. Compared with the 94 ban, the 924 notice clearly stated that the "related business activities" of the following five types of virtual currency are "illegal financial activities": (1) carrying out the legal currency and virtual currency exchange business, and the exchange business between virtual currencies; (2) Act as a central counterparty to buy and sell virtual currency; (3) provide information intermediary and pricing services for virtual currency transactions; (4) token issuance financing; and (5) virtual currency derivatives transactions, etc.

**In view of the fact that the stablecoins issued by some commercial institutions discussed in this article are one of the virtual currencies defined in the 924 notice, if the "related business activities" related to stablecoins are currently within the scope of "illegal financial activities", they are prohibited 924 notice prohibited. **

4.3.3 USA

In November 2021, the U.S. President’s Working Group on Financial Markets, the FDIC, and the U.S. Office of the General Review of the Currency jointly released a report on stablecoins. To address the risks of payment-based stablecoins, the report recommends that the U.S. Congress expeditiously legislate to ensure that payment-based stablecoins and their related arrangements are regulated under a unified and comprehensive federal framework to fill the current gap between stablecoins in terms of market integrity, investor protection and legislative gaps in areas such as illicit financing, and will address the following key concerns:

(1) In order to prevent stablecoin runs, legislation should stipulate that all stablecoin issuers must be insured depository institutions and be subject to appropriate supervision at the level of depository institutions and holding companies;

(2) To mitigate payment system risk, legislation should subject custodial wallet providers to appropriate federal regulation;

(3) To address systemic risks and risks of concentration of economic power, legislation should require stablecoins to comply with activity restrictions that limit affiliation with commercial entities.

Regulators should have the authority to enforce standards to facilitate interoperability between different stablecoins. Additionally, the U.S. Congress is considering additional criteria for custodial wallet providers, such as limiting their affiliation with commercial entities or users’ transaction data.

On March 31, 2022, Senator Bill Hagerty submitted "The Stablecoin Transparency Act" in the Senate; the bill aims to improve the transparency of the stablecoin market and set reserve standards for reserve assets. The bill requires stablecoin issuers to:

(1) Government securities held for less than 12 months;

(2) A securities repurchase agreement with sufficient collateral;

(3) Have reserves backed by U.S. dollars or other non-digital currencies, and need to publish a report on the third-party audited reserve assets held by the stablecoin issuer on its website every month.

On April 6, 2022, Pat Toomey, a member of the U.S. Senate Banking Committee, announced the discussion draft of the "Stablecoin Reserve Transparency and Uniform Security Transactions Act" (The Stablecoin TRUST Act). The discussion draft of the bill intends to limit the issuers of payment stablecoins to the following three types of institutions:

(1) State-registered money transmitters;

(2) hold a new federal license designed specifically for stablecoin issuers;

(3) Insured depository institutions, and require payment of stable currency issuers to disclose their reserve assets, formulate redemption policies, and accept periodic certification from certified public accountants.

In May 2022, Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), told the House Appropriations Financial Services Subcommittee that many cryptocurrency trading platforms were trading securities, not commodities, as defined by the SEC, requiring lawmakers to increase The SEC's executive budget to require cryptocurrency trading platforms to register with the SEC. Therefore, cryptocurrency trading platforms should also pay attention to reviewing whether stablecoins will be identified as "securities".

In April 2023, the U.S. Congress successively issued two drafts of stable currency legislation (respectively referred to as the "U.S. Draft 2023 First Draft" and "U.S. Draft 2023 Second Draft", collectively referred to as the "U.S. Draft"), and held two hearings on this . The U.S. Congress stated that it would promulgate the third version of the draft legislation within two months, and believed that the draft was likely to receive bipartisan support and be formally passed.

The main contents of the first draft of the US draft in 2023 are as follows:

1. A detailed definition of "stable currency used for payment", that is, "(subject to individual exceptions) (1) a virtual asset that is used or designated for payment or settlement, and (2) ( its issuer) is obliged to convert, redeem or repurchase (stablecoin) at a fixed currency value; or (its issuer) claims to maintain or create a reasonable expectation of: The value will remain in constant proportion."

2. The license is issued to stablecoin issuers. Bank issuers only need to be approved, while non-bank issuers need to be licensed, otherwise there will be corresponding fines and penalties. No distinction is made as to whether the license applicant is established within or outside the United States.

3. Different types of algorithmic stablecoins are treated differently. It adopts the concept of "endogenously collateralized stablecoins", which can be roughly understood as uncollateralized stablecoins, or the digital assets issued by the same issuer as the value support behind the stablecoins. Endogenous mortgage stablecoins are likely to be subject to a ban within two years after the implementation of the bill, during which time new coins cannot be issued, while existing algorithmic stablecoins that have already been issued are not subject to the ban.

4. Asset segregation requirements are more focused on protecting the rights and interests of clients from creditor claims. The U.S. draft clearly prohibits the re-pledging and mixing of customer funds.

5. It stipulates that the issuer must disclose the composition of reserve assets on its website every month. Not only must the attestation be made monthly to federal regulators, but the attestation must be the CEO of the issuer.

4.3.4 Singapore

Singapore's "Payment Services Act" promulgated in 2019 and implemented on January 28, 2020, includes digital payment tokens (Digital Payment Token, referred to as DPT) and electronic money (e-money) into regulation; according to the Act, DPT services and e-money issuance services are regulated activities under the Payment Services Act and require a payment service provider license.

The Monetary Authority of Singapore believes that stable currency does not meet the characteristics of electronic currency because of its fixed exchange rate with legal tender and stable currency holders do not need to have a contractual relationship with the stable currency issuer or open an account with the issuer. Therefore, it is not an electronic currency under the Payment Services Act.

The Monetary Authority of Singapore further stated that it will examine the characteristics of specific stablecoins on a case-by-case basis from a technology-neutral standpoint to determine appropriate regulatory measures. In the view of the Monetary Authority of Singapore, USDC and USDT should be recognized as DPT based on the characteristics currently exhibited, so the provision of DPT services related to these two types of stablecoins should be regulated by the Payment Services Act and corresponding licenses should be applied for .

In October 2022, the Monetary Authority of Singapore issued a consultation on the proposed regulatory approach to stablecoin-related activities, which contains more specific regulatory measures than other countries or regions, and plans to issue a summary of the consultation in mid-2023. The main contents of the consultation case are as follows:

1. The Monetary Authority of Singapore stated that Single-currency pegged stablecoins (Single-currency pegged stablecoins) have more payment and clearing functions and will be the main regulatory object of the draft.

2. The license system of the Singapore consultation case is issued to stable currency issuers. In addition, different regulations apply to bank and non-bank issuers.

3. The Monetary Authority of Singapore stated that the priority of current legislation is to focus on stablecoins issued locally. In addition, under the premise of fungible, the same stable currency is issued by different issuers in different countries or regions, and plans to solve it from two aspects: one is to require Singapore issuers to submit Annual certification to prove that other major issuers (issuing more than 5%/10% of circulating stablecoins) have complied with the same reserve asset requirements and prudential standards; the second is to establish regulatory cooperation among relevant regulatory agencies linked to single currency stablecoins, to Exchange operational information for that stablecoin.

4. According to the Singapore Monetary Authority consultation case, the issuer needs to segregate the stablecoin reserve assets and the issuer’s own assets in different accounts, and the client’s MAS regulation is linked to the single currency stablecoin, the client’s other assets and the issuer’s assets. Its own assets also need to be isolated in different custody accounts to reduce the risk of funds being mixed.

5. For reserve assets and their high quality and liquidity, the Singapore consultation case stipulates specific standards, such as market pricing, reserve assets can only be cash or equivalents, or bonds that are less than three months from maturity, and Issued by a central bank with a stable pegged currency or a governmental international agency with a credit rating not lower than AA-, and denominated in its pegged currency. The frequency, independence and open channels of disclosure, assurance and audit requirements are also specified.

It is worth noting that if the stable currency offered or issued constitutes a capital markets product (capital markets product) (such as a security or a share in a collective investment scheme) under the Securities and Futures Act, such an offer or issuance will be subject to Regulation of the Securities and Futures Act; intermediaries assisting in such offerings or issuances (including platform operators providing a platform for the offering, issuance and/or trading of the stablecoin and providing financial advice in relation to the stablecoin Intermediaries) will be subject to licensing requirements and other compliance requirements under the Securities and Futures Act and/or the Financial Advisers Act accordingly.

4.3.5 EU

In May 2023, the Council of the European Union, composed of government ministers from 27 EU member states, approved the Market Regulation for Cryptoassets (MiCA), a draft proposed by the European Commission in 2020 and to be implemented in 2024. MiCA defines cryptoassets as “digital representations of value or rights capable of being transmitted and stored electronically using distributed ledger technology or similar technology”

MiCA can be divided into three main frameworks:

1. Encrypted asset issuance rules: Issuers of various encrypted assets are required to draft a white paper (similar to a prospectus in function) and obtain prior permission from the competent authority for utility tokens and encrypted assets. A more complex set of rules for issuance, authorization, governance and prudential requirements, applicable to asset reference tokens and e-money tokens.

In addition to the removal of the ban on algorithmic stablecoins in the EU, MiCA requires fiat-backed stablecoins to be backed by a 1:1 ratio of liquid reserves. The required application for a stablecoin issuer includes:

(1) ARTs are subject to stricter regulatory requirements than EMTs (considered to be more likely to threaten the currency stability of the European Union), and must apply to the local regulatory agency before issuance, and regularly report to the regulatory agency for trading customers after approval , transaction loans, reserves and other information.

(2) To protect and support holding assets and reserve assets, issuers are required to use a certain ratio or deposit to establish sufficient liquidity reserves to protect consumers and avoid runs.

(3) Establish investment litigation procedures and procedures to prevent market suspension and insider trading.

(4) Establish and maintain an asset reserve isolated from other assets and managed by a third party.

2. Encrypted asset service provider (CASP): requires authorization from the competent authority and applies to financial companies under the Markets in Financial Instruments Regulation II (MiFID II);

3. Rules to prevent market abuse of cryptoassets: These rules are broadly similar to those foreseen in the Market Abuse Regulations applicable to securities, but are more concise. The last rule aims to avoid Elon Musk-like behavior, where a single statement by a prominent figure could suddenly change the value of a crypto asset.

Throughout the world, stablecoins have attracted the close attention of regulatory agencies in various countries. The supervision of stablecoins in various countries is different, and legislation is also at different stages. The supervision of stablecoins is also continuously strengthened. For institutions engaged in related businesses, they should assess risks and applicable laws and regulations at any time, and quickly adjust their business models to comply with relevant regulations on stablecoins and avoid potential compliance risks.

Quote: [1] Electronic version of the Hong Kong law "Securities and Futures Ordinance";

[2] The Hong Kong Special Administrative Region Government Press Release Law Council passed the "Anti-Money Laundering and Terrorist Financing (Amendment) Bill 2022";

[3] CoinGecko Crypto Industry Report 2021/2022/2023;

[4] Stablecoin Research - Issuance Background and Market Overview 2018;

[5] TetherGoldWhitepaper

[6] USDC centre-whitepaper；

[7] BUSD: Everything you need to know about stablecoins;

[8] Beginner's Guide_What is the TUSD cryptocurrency? Cryptonews-Market Cap;

[9] MakerDai - white paper;

[10] Frax - white paper;

Disclaimer: The above content and opinions are for reference and do not constitute any investment advice; the above content is based on the collection and summary of general public network information; the above content is only a statement of the objective situation and does not constitute any form of advice; this article does not represent the previous Preface to observe any point of view and position; this article has multiple sources of content, if there are any omissions in the reference part, please leave a message to make corrections;

This article only conducts research and analysis on the development trend of global stablecoins. It is only for readers to study and discuss, and does not have any commercial and practical reference value.

Different countries and regions have different policies on digital currency and stable currency. Readers must abide by the laws and regulations of the country or region where they are located.