#285—The year of stablecoin regulation

Also, tokenized money isn't crypto

Feb 26, 2024

Welcome to Yaka Stuff, our weekly newsletter that covers news, industry perspectives, and updates from the Hard Yaka ecosystem. Check out our last report here.

This week:

The year of stablecoin regulation
OCC: Tokenized money isn’t crypto
What we’re reading: Can the Internet Be Governed?
Stuff happens

1. The year of stablecoin regulation

It could happen in the UK within six months, according to Economic Secretary to the Treasury Bim Afolami. Bloomberg:

Economic Secretary to the Treasury Bim Afolami, speaking at an industry event hosted by Coinbase in London on Monday, said the government was “pushing very hard” on making legislation happen.
“We’re very clear that we want to get these things done as soon as possible. And I think over the next six months, those things are doable,” Afolami said.
The Treasury first pledged in October to provide more clarity on specific areas of crypto by some point in 2024. That commitment followed an earlier consultation on fiat-backed stablecoins — digital tokens that use reserves of assets to maintain a one-to-one value with a traditional currency like the dollar or pound — and the passing of the larger Financial Services and Markets Act last summer.

Across the pond, Rep. Maxine Waters made a similar promise earlier this month. Politico Pro:

The House Financial Services ranking member has spent months trying to reach a compromise with committee Chair Patrick McHenry (R-N.C.) on how to regulate stablecoins, cryptocurrencies pegged to assets like the U.S. dollar. Her comments in the interview are the first real sign that those conversations have progressed.
"We're working on stablecoin; we're getting very close," Waters said. "We're very, very close — very close."

Then there’s the EU, which has always been a market leader in making rules. Their comprehensive crypto law, MiCA, is set to go into effect at the end of the year, but the stablecoin portion will go live this June.

Here’s Coindesk:

MiCA applies as of Dec. 30, 2024, with stablecoin provisions taking effect six months earlier in June – a hiatus designed to give industry and regulators time to prepare. But MiCA won’t be the final word.
Other EU laws also affect the crypto sector, dealing with issues like money laundering, tax avoidance, bank capital, cybersecurity and distributed ledger technology-based securities trading. Future laws could also use the regulatory categories MiCA creates as a point of reference.
By mid-2025, the commission will report on whether further laws are needed to cater for NFTs and decentralized finance, and the European Central Bank’s Chief Christine Lagarde has already called for a sequel to deal with crypto lending and staking.

2. OCC: Tokenized money isn’t crypto

So says Acting Comptroller Michael J. Hsu in his remarks to the Financial Stability Board’s Crypto Working Group earlier this week. (via Chris Lewis)

Before I hand things off, I want to pose a bigger picture question for workshop
participants to ponder. What is the relationship between crypto and tokenization? The OCC recently hosted a symposium exploring the legal and risk management foundations of tokenizing real-world assets and liabilities. Blockchains and distributed ledgers were barely mentioned. In fact, the keynote speaker, Hyun Song Shin of the BIS, highlighted that tokenization can improve settlement and enable programmability without blockchains. Crypto advocates have cited tokenization as a key use case. But if blockchains are not necessary to achieving that, one wonders what the future landscape of tokenized real-world assets and liabilities might look like, and what the financial stability profiles of different scenarios might be.

3. What we’re reading: Can the Internet Be Governed?

Akash Kapur at the New Yorker (via Greg Kidd):

In “Digital Empires,” Bradford tries valiantly to impose some coherence on this distended terrain. She considers the efflorescence of Internet laws as part of a wider struggle for global power in an emerging multipolar world. As she sees it, the disparate strands of lawmaking can be grouped into three regulatory regimes, or competing “digital empires.” Despite some recent shifts, the U.S. continues largely to advocate for the Internet’s original “market-driven model”; China’s “state-driven model” represents a transposition of its general authoritarianism to the online realm; and the E.U.’s “rights-driven model” seeks to chart something of a middle way, more proactive and risk-averse than America’s but also more mindful of privacy and individual rights than China’s. Each approach corresponds, broadly, to a different calibration between the countervailing powers of nation-state and private enterprise.
…
The story of the Internet usually focusses on the United States and Europe, with a few recent cameos from China. Yet India is the key player in another approach that’s currently spreading across the so-called Global South, in Africa, Latin America, and Asia. As the journalist and academic Nalin Mehta writes in his recent book, “India’s Techade” (Westland), India has, in the past decade or so, launched a digital revolution “unlike any that came before”—one that started quietly but has recently gone “viral on a scale that is unprecedented.” India’s digital stack, as the basic technology is known, may ultimately shape the future of the Internet far more significantly than the efforts of Western regulators.
…
At an elementary level, the program was simply an effort to create something akin to a Social Security number—no small achievement in a country as large as India, but hardly revolutionary on its own merits. Under Nilekani’s guidance, the program has overcome public skepticism, bureaucratic inertia, and legal challenges to sign up 1.4 billion citizens. Each now possesses a twelve-digit identity number, known as an Aadhaar (Hindi for “foundation”), which is linked to biometric information such as iris scans and fingerprints. But Nilekani’s real achievement has been to use the I.D. numbers as the underpinnings of an integrated digital ecology (“the stack”). It consists of government-enabled modules (collectively referred to as digital public infrastructure, or D.P.I.) that allow citizens to make online payments, receive welfare, conduct banking, and store and certify official documents (e.g., covid-vaccine certificates). The government, in this way, is building what the World Bank calls “plumbing” for a more controlled—and possibly less toxic—version of the Internet, leaving space for private developers to build platforms and services on top of it.
Ten billion or so payments take place every month in the stack, accounting for almost half of the entire world’s real-time digital payments. The technology has enabled trillions of dollars in commercial activity, and is estimated to have saved around thirty-four billion dollars between 2013 and 2021 by impeding corruption. Beyond numbers, the stack’s impact is increasingly visible in daily life. Mehta’s book is filled with human stories that vividly illustrate technocratic terms like “financial inclusion” and “leapfrog development.” There’s Lakshmi, a fifty-eight-year-old widow, who uses her Aadhaar card and thumbprint to access a monthly pension of eight hundred rupees. There’s the village of Saharanpur, where government money for purchasing new toilets and even homes is directly deposited into residents’ accounts, thus cutting out grasping middlemen. And there are a multitude of small venders—fruit sellers, rural tea shops, thatched roadside restaurants—that now take payments via cell-phone-scanned QR codes, changing the way Indians conduct commerce. Such scenes, familiar to anyone who might have recently visited India, explain why the digital stack has been compared, in its potential consequences, to the Green Revolution of the nineteen-sixties.

Yaka Stuff

#285—The year of stablecoin regulation

Also, tokenized money isn't crypto

1. The year of stablecoin regulation

2. OCC: Tokenized money isn’t crypto

3. What we’re reading: Can the Internet Be Governed?

4. Stuff happens

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