Regulating Stablecoins: The Future for Governments and Financial Institutions

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As the world continues to develop rapidly and moving at a very fast pace most especially in this digital world and also digital currency that we are in, I must confess that stablecoins have become a very major innovation that have transform a lot of things around. Stablecoins are actually designed in a way whereby it helps to maintain the stable value of the pegged assets.

There are so many benefits that stablecoins offer when it comes to transactions case. Examples like Speed, efficiency, border less transactions and many more. These volatility goes a long way to actually control a lot of things and make sure that the digital assets are well used and not only used but also having edge over the volatility nature of the market. Recently now, stablecoin are getting so much incorporated in the traditional financial systems.

Talking about the rise and the importance of stablecoins, I will say it has been able to transform massively around. The fact that stablecoins are so versatile in nature, that has helped to transform the financial world around. Most of the time, the stablecoins are mostly used for trading, Decentralised finance which is called DeFi. We have many of stablecoins like USDT, Dai and even Steem platform having their own stablecoin called Steem Backed Dollar.

It works on a whole lot of stablecoins like algorithmic stabilization and many more most especially the fact that it is fiat backed. This has gone a long way to make sure that stability is actually achieved. The rapid growth that has evolved has been able to overcome a lot of vulnerabilities and most especially in the aspect of the financial stability, the regulatory issues and many more.

Now come to think of it, even with lot of advantages that stablecoins posed, there are still a lot of challenges that needs to be looked into. The first I will like to talk about is the aspect of protection and transparency. Even though stablecoin are stored by reserved, sometimes it does not usually offer this transparency that those reserves needs which sometimes can cause great concerns. Most of the time, it can even lead to financial losses.

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The second challenge is the aspect of the Cross Border Regulatory Arbitrage which is also a major challenge. In fact I will say stablecoins is causing a lot of issues that needs to be looked into. Most of the time, stablecoin always face regulatory discrepancies that sometimes if not properly looked into can lead to issues like money laundering, tax evasion and many more criminal fraudulent activities.

One of the strong recommendations that I strongly have is that if governments can be able to establish stablecoins so that they can use it and those stablecoin will be different from those fiat backed one that we know. There are some risks that might be facing in those challenges, I believe if government can come up with some regulations, it will go a long way to actually address it massively.

The second one is the aspect of ensuring transparency and reserve backing. Like I said earlier, one of the constant issue that the stablecoin is still facing is transparency and most of the time reserve backing. I believe people who always issue stablecoin can actually make sure that transparency can be achieved, it can definitely go a long way to overcome what we call the insolvency and misrepresentation that we are facing sometimes.

The other last aspect I will like to talk about is the aspect of Licensing and Oversight. I must tell you that stablecoins issuers are actually facing huge issues to actually backed up the financial entities for some assets. I believe if there can be some regulations like anti money laundering and even counter terrorism financing, it will make sure that there is well use of the stablecoins and the illicit activities.

Lastly is the aspect of integrating stablecoins with what I call the CBDC framework. There is a way CBDC can actually help to give more opportunities whereby government and those stablecoin issuer's can work together. This can help to achieve financial stability most of the time.

As I conclude, I will like to establish that the growth of stablecoins is really needed. Even though it has started, I am so sure it will continue to get better and better as time goes on. We will definitely know how things will actually play out because opportunities will actually help to overcome those challenges. I believe it is high time government comes to see that they also have a role to play in preserving the value of stablecoins.