November 1, 2022 marks the one-year anniversary of the President’s Working Group on Financial Markets (PWG) releasing a report on stablecoins alongside an “urgent” call for action developing a regulatory framework. The report — recognizing the burgeoning prevalence of blockchain technology in the U.S. financial markets — sounded the regulatory alarm and issued a call-to-arms to policymakers, to carefully examine stablecoin use and identify areas necessitating Congressional intervention to address the risks and opportunities of dollar- digital currencies .
A year later, the PWG’s report deserves no less sense of urgency: the stakes of regulatory action have become painfully clear as “so-called” stablecoin projects have imploded while consumers continue to contend with differing and often opaque disclosure, resolution, and safeguards. While Capitol Hill has yet to pass meaningful legislation to regulate the stablecoin space, the U.S. government has recently sounded off in reaction to the PWG’s report – with eight agency reports released in successive order. These releases are a testament to the whole-of-government regulatory regime that the Biden Administration envisions as necessary to support the sound growth of the industry, and Circle applauds the engagement and care regulators and policymakers have displayed for this new financial technology.
Above all, the reports highlight a foundational need for U.S. regulation to protect consumers and the financial sector, promote financial inclusion, and advance American values domestically and abroad. Releases from the Treasury Department, Justice Department, and the Financial Stability Oversight Council (FSOC) offered numerous recommendations to stabilize markets during times of stress, manage illicit finance risks, and support financial access, to name a few.
While the government researched and drafted the reports, USD Coin’s (USDC) existing features — based on Circle’s commitment to transparency, stability, and inclusion — already address many of the concerns and have made huge inroads towards realizing the potential touted in the reports. While Treasury expressed concerns about “insufficient or illiquid reserves” affecting the stability of stablecoins — which could have ripple effects in the greater DeFi and TradFi arenas — USDC is fully backed by cash and short-dated U.S. government obligations, so that it is always redeemable 1:1 for U.S. dollars. This helps ensure the stability of USDC and facilitates redemptions for Circle customers, which have totaled over $140 billion as of this year.
FSOC’s “Digital Asset Financial Stability Risks & Regulation” report said redemption regimes in the stablecoin space lacked clarity, but Circle has facilitated always-on, 24/7/365 redemptions to our customers. Circle seeks to instill confidence to USDC customers through our reporting of live statistics about USDC usage, weekly figures for USDC supply, issuance, and redemptions, along with monthly attestations from a leading global accounting firm.
The Treasury Department and other agencies stressed the importance of addressing illicit finance risks in the digital asset sector while recognizing that preserving user privacy was paramount. USDC has, and will continue to, abide by stringent anti-money laundering, know-your-customer protocols, and know-your-business protocols to quickly identify and root out bad actors and illicit activity. Circle also has had a hand in developing Verite, an open source protocol intended to help reduce the anonymity of certain digital assets without minimizing a user’s right to privacy.
Additionally, Treasury’s “Implications of Digital Assets Adoption” report expressed doubts that the use of digital assets could facilitate “cost-effective, faster, or easier” cross-border payments. But USDC has endeavored to make payments around the world more efficient. The largest cryptocurrency exchange platform in Latin America reported a 400% increase in remittance volume using USDC year-over-year — totaling up to $1 billion in remittances, or about 5% of total U.S.-Mexico remittance volume.
While Treasury questioned the ease of fiat-to-digital asset conversion and vice-versa, Circle has addressed this issue by partnering with Coinme to enable the conversion of fiat to USDC without a bank account on the Stellar blockchain. Enabling individuals without a presence at a traditional financial institution to convert cash into digital assets could be a critical step towards onboarding underserved communities. As the digital asset sector continues to grow and innovate, Circle anticipates that the use cases and users of stablecoins will continue to expand and that sound, responsibly designed stablecoins help individuals around the world make payments at the speed of the internet.
The Commerce Department, in its “Framework for Enhancing Economic Competitiveness” report, affirmed the potential, stating that the promotion of the digital asset industry could help the United States maintain its stance as a global economic and technology leader — particularly when other countries like India, Russia, China and other emerging markets have picked up web3 development. Circle’s easy on-ramps for businesses to integrate digital assets into existing operations could help the U.S. economy adopt USDC and blockchain technologies. Circle’s commitment to expanding financial literacy, through initiatives like Circle Impact’s Circle U curriculum, and willingness to engage with government, public sector actors will continue to accelerate digital asset adoption and keep the United States competitive
Across the board, these reports underscored the urgent and critical need for a regulatory regime to oversee stablecoins and digital assets. Treasury conveyed the importance of regulation to protect users from market conduct risks and boost the financial inclusion benefits of this novel financial technology, while Commerce and FSOC laid a clear regulatory framework for improving the U.S.’ economic competitiveness on the world stage and encouraging cohesion between state and federal regimes. Circle agrees with the agencies’ conclusion to move forward with stablecoin regulation, and encourages Congress and its other partners to proceed expeditiously towards a prudential regime that will promote responsible innovation and consumer protection among stablecoin use and issuance.