Stablecoin Regulations: Pros and Cons

Stablecoins are a special kind of cryptocurrencies that are linked with fiat currencies, or financial instruments or commodities. For example, Tether is pegged to the US dollar, Tether Gold is linked with the price of gold, and Tether EURt is pegged to the Euro. Unlike other kinds of cryptocurrencies, stablecoin regulations have yet to gain enough popularity. Only a handful of countries have enacted such regulations. Therefore, it is crucial to understand the pros and cons of stablecoins and analyze them.

Pros of Stablecoin Regulations

Let us delve deep into some of the pros of stablecoin regulations and understand how these pros may benefit investors and traders.

Offers Financial Access

Stablecoins regulations may improve financial access to unbanked and underbanked people. It is a fact that a significant portion of the world’s adult population does not have access to financial systems. However, by regulating stablecoins, many individuals can store and transfer money, make investments, and give loans. 

Save Money During Uncertainty

Stablecoins can be a safe option for investors during times of financial and political uncertainty. When markets are unstable, there are few options that people have to store their money and protect its value. With the help of regulation, stablecoins can offer a better alternative under such adverse circumstances. 

Stable Means of Exchange

Stablecoins can offer an easy means of exchange to move around the world. Standard regulations can simplify the legal complexities involved in dealing with cryptocurrencies. Therefore, these regulations may make cryptos more acceptable than before and help better checks and wire transfers. 

Diversify Payments

Regulations may help stablecoins to diversify payments across the world. It can help businesses to diversify their payment options and reduce dependence on a few major fiat currencies. Currently, the US Dollar is the most used fiat currency in the world. This may change if governments start regulating major stablecoins.

Stable Digital Currency

Although stablecoins are already more stable than ordinary cryptocurrencies. However, after proper regulations and legislation, the stability may increase further. This is important because people can use this currency for businesses and transactions. Moreover, budgeting and planning can become much easier after the regulation of stablecoins becomes a worldwide phenomenon.

Cons of Stablecoin Regulations

There are some cons of stablecoin regulations. Some risks may increase if stablecoins are regulated by governments and central banks.

Transparency

The transparency of stablecoins may decrease a lot if regulations become stricter and more formalized. For example, Tether faced public criticism of whether the company had the correct amount of reserves or not. Eventually, the US government imposed fines. 

Centralization

Regulations may further centralize stablecoins and make them more unique compared to other cryptocurrencies. Consequently, this can make stablecoins have the same disadvantages that fiat currencies already have.

Countries Adopting Stablecoin Regulations 

According to PWC Global Crypto Regulation Report 2023, there are only six countries that have adopted regulations for stablecoins. These countries are Japan, Switzerland, The Bahamas, The Cayman Islands, and Gibraltar. Many of these countries have imbibed crypto regulatory framework, Financial Action Task Force (FATF) approved travel rules, and Anti-Money Laundering for stablecoin laws. 

Also Read– Gear Up for a Santa Claus Rally in Crypto Markets!

Conclusion 

Stablecoins are more useful than ordinary cryptocurrencies. This is because they are pegged with a fiat currency or any other stable financial instrument. Regulating stablecoins may naturally help in the popularization of cryptocurrencies. However, there is some reluctance concerning regulations. This is why many countries are not taking adequate measures to regulate stablecoins.