December 10, 2023

Stablecoins centralized = regulated?

Now I should note that it’s not entirely clear how much money the hacker managed to get out.

Tether immediately blacklisted the ethereum wallet which received the USDT that had been bridged over from the BNB Chain by the hacker.

I suspect Circle did something similar with USDC and Paxos with BUSD, the fact that stablecoin issuers have this power at all is concerning to many hence why those who truly care about Financial Freedom have looked to decentralize stable coins to park their digital dry powder.

The only problem is that the largest decentralized stablecoin protocol is starting to centralize too.

Maker holders recently passed a proposal which will see 500 million dollars of the crypto collateral backing the dice stable coin in the maker Dow protocol to be invested into US government and corporate debt.

The centralized stable coins like USDT, USDC and BUSD are backed by the exact same assets.

This begs the question of just how centralized maker Dow could become if that 500 million dollar money pile expands to billions.

For reference there are 6,7 billion die in circulation which are backed by 9 billion of cryptocurrency.

Ironically die is still mostly collateralized by the USDC stable current which could have a whole slew of censorship implications in the not so distant future.

The Silver Lining is that maker Dow’s willingness to subsidize the US government spending, with its reserves will probably protect the protocol from any unreasonable crypto regulations.

This seems to be one of the main reasons why we haven’t seen a stablecoin Crackdown just yet, this doesn’t mean a stable coin Crackdown isn’t coming.

However the first Target on that front isn’t make a dow either, it’s Tether.

That’s because Tether’s assets don’t exist on a publicly viewable blockchain like maker Dows or inside the United States like the other centralized stablecoin issuers.

The unprecedented violations of privacy we’ve seen since the Patriot Act should tell you that the US government cares about information more than anything else.

Tether’s relative lack of transparency has therefore been very problematic for US Regulators especially when it comes to Tether’s Reserves.

Now Tether recently announced that almost 60 percent of the USDT in circulation is now backed by US government debt.

In addition to potentially protecting Tether from scrutiny its increased subsidies of the US government will also look very good when its Italian accounting firm releases its upcoming attestation of reserves.

Now I’ll quickly note that an attestation is not the same as an audit.

An attestation just involves an accounting firm verifying the information that’s being shown to them.

An audit is when an accounting firm goes digging through the documents to find out what’s really going on.

Believe it or not but it looks like none of the stablecoin issuers have been audited to this day.

The Only Exception appears to be Paxos which does get audited from time to time according to its website.

Oddly enough none of these audits are on Paxos website that’s centralized stablecoin issuers for you.

In any case this lack of transparency is likely to cause regulatory issues for all stablecoin issuers including Circle whose USDC stablecoin has been shrinking.

As of late USDC’s supply has fallen by 9 billion over the past three months and it doesn’t look like it’s going to stop.

Anytime soon conversely the supplies of USDR and BUSD have continued to grow suggesting that stablecoin holders are ditching USDC for its competitors.

That said the growth in USDT and BUSD only accounts for one third of the market cap that USDC has lost.

This suggests that many are cashing out of USDC entirely cashing out of stable coins in a bear Market.

Makes sense because there are not many gains to be made and not much yield to be had this is the case for just about every asset class out there, but there is one exception – commodities.