The stablecoin market is in the crosshairs of the regulators. There is a lot of discussion taking place and it looks like Canada fired the proverbial shot across the bow. What is coming from regulators is no surprise but it does provide insight into the future.
Before getting into the discussion, we have to clarify they are going to treat algorithmic stablecoins differently than those that are reserve based. Under the latter, there are assets to support the stablecoin. This is most commonly US dollars or cash equivalents such as US Treasuries.
An algorithmic stablecoin, like the Hive Backed Dollar (HBD), does not have a reserve fund. Instead, it is backed by another asset that it can be converted into. It is based upon the market capitalization of the backing agent, in this instance $HIVE.
The regulators in Canada are putting all of this under the existing securities laws.
Image from Wikipedia
Regulation Forthcoming
The Canadian Securities Administrators issued a report outlining the approach to stablecoins. This is something that we should expect to spread throughout much of the developed world over the next year or two. It is safe to say that many, if not most, countries will take a similar approach.
To start, the asset backed securities are not a problem.
Stablecoins backed by fiat currencies may be exempt from regulation provided their reserves are liquid and undergo monthly audits, according to Canadian watchdogs.
Algorithmic stablecoins, called “Value Referenced Crypto Assets” (VRCAs), will not be allowed without approval. To achieve that:
.. it is necessary to fulfill the several due diligence criteria imposed by the administrators, one of which is to guarantee that the stablecoin is backed by fiat currency.
Of course, it goes on to say:
The CSA does not anticipate giving their agreement regarding a VRCA that is not entirely supported by a good reserve but instead maintains its value via an algorithm. This is because CSA does not plan to supply such a VRCA.
In other words, unless a stablecoin is asset backed, it is out. This means trading HBD in Canada is going to be make illegal.
There is the option of getting an exemption except for the fact there is nobody to apply for it. Here is where we truly are embarking upon uncharted territory.
Nevertheless, it is becoming clear. If nations are to accept stablecoins, their views will lean towards asset backed. They will regulate the entities behind them such as Circle, which will fall under the banking laws. Do not be surprised if a company such as this ends up acquired by a major bank.
That is another piece of the puzzle. While many espouse the virtues of USDC, what happens if Circle is purchased by the likes of Goldman Sachs or JP Morgan?
The counterparty risk here is evident.
The Decentralized Approach
One of the reasons we cover HBD so much in these articles is to drive home the point that this is an enormous advantage to the Hive ecosystem. We are dealing with something that is limited counterparty risk along with showing how valuable something truly decentralized really is.
Hive is the decentralized approach. With HBD, there is no company that can comply. We do not even have anyone to fill out the paperwork. At the same time, regulators have no address which to send summons or file court cases. There is no door to knock on with the policing authorities to make arrests.
HBD operates on a decentralized blockchain, with nodes throughout the world. That is effectively what is behind the coin. At the same time, there is no fund or account holding reserves since the other base layer coin is the backing agent. That is freely traded and also held by people globally.
What the Canadian approach does is make it illegal for exchanges in Canada to carry HBD. Of course, this applies to centralized entities since decentralized exchanges, by definition, do not operate in one location.
Fortunately, for those holding HBD, there is an easy solution. Hive has an internal exchange where HBD can be swapped for $HIVE. This is not going to be affected by the decisions of regulators, at least not initially. If they do decide that backing coins also fall under the ban, then we simply need to establish liquidity pools whereby people can go from either $HIVE or HBD to a wrapped token such as Bitcoin.
Here is where the regulators are facing an opponent they never considered before. How do you attack something when there is no company, individual (or group of), nor institution to go after? It is a perplexing situation to think about.
On And Off Ramp
The playbook for the regulators is to choke the on and off ramps. They are targeting the vulnerability to point of moving from cryptocurrency to fiat.
In the United States, we saw Operation Choke point which was used to hinder industries such as gambling and firearms from accessing banking services. The Biden Administration is implementing Operation Choke Point 2. We already see part of it is an announcement by SWIFT regarding the support of crypto exchanges.
The challenge with this is evidenced by what we are seeing in Sucre with the Hive Backed Dollar. Unlike the first operation, this choke point is going to fail because cryptocurrency itself can be used as a medium of exchange. While the industry requires converting to fiat, many doors are opening to purchase goods and services. This is the situation in Sucre where more than a dozen businesses accept HBD.
Hence, there is no on or off ramp required, at least to make purchases.
As this spreads, it will be a major hold in the armor of the regulators. There are simply going to be nations around the world where this is not outlawed.
When governments try to squeeze the money supply and if affects commerce, merchants tend to take matters into their own hands. This was the case throughout history and there is no reason to believe it will not happen again.
The future of HBD is being set. There is no way to regulate a decentralized system. As always, the focus is upon the "money", completely ignoring the monetary system. Here is where Hive excels. It is also where it is basically unmatched.
Have no fear my friends. This is a repeat of the Eurodollar System. After years of study, it is evident the politicians really do not understand it, let alone having the ability to reign it in.
I see a mirror repeating with Hive. It is being constructed in a similar manner and is equally misunderstood by those in power. When something is truly decentralized and global, it is out of the reach of any government.
That is the lesson from the past 70 years.
Hive is following a similar path. Do not look at the money, focus upon the monetary system.
If you found this article informative, please give an upvote and rehive.
gif by @doze
logo by @st8z
Posted Using LeoFinance Beta
I don't think that any chain is immune from regulators if they focus on it.
If I want to attack hive then my first port of call is serving notice to blocktrades as a top witness followed by everybody else on the list within reach. Participating in illegal activities.
Then you have the companies built on the chain and accepting HBD as a medium of exchange.
Then the companies providing internet servers and everything else.
It wouldn't be easy to do and i'm sure we are not on theri radar yet but if they kill of the competition with braoder strokes it would be easy to turn the mchaine on hive.
We are worldwide but a lot of the community is based in these countries.
Posted Using LeoFinance Beta
What if blocktrades and everybody else sets themselves up as decentralized autonomous organizations
I agree we have to be ready for anything as never say never.
Posted Using LeoFinance Beta
The danger is HBD and HIVE are not private, a vengeful government could track people down… they freeze people’s bank account over a protest already.
Depending on how they define “Value Referenced Crypto Assets”, HBD may be able to sidestep the issue. If the definition is specific to fiat, HBD could repeg to an index based on a basket of commodities. It wouldn't be a major technical challenge, the most difficult part would just be getting consensus on the change from witnesses.
And I don't have to move my computer out of Canada.
Posted Using LeoFinance Beta
Regulation is inevitable. We just can't hate the regulation anymore. Because we have to open the road for FIAT and the crypto flow. I feel we just have to find a way for staying under the radar as well staying internal cashflow going.
I believe eventually USDC will become something like a CBDC.
Thinking of moving my ETH holding to BTC under the fear of stake manipulation like we saw with Justin Sun.
Brilliant.
This kind of feels like a non-issue for me. Of course it is a roadblock towards mass adoption of Hive and HBD, but I don't think it is going to stop the average Hive user from doing what they normally do on a daily basis.
Posted Using LeoFinance Beta
It's also just hilarious because...
Okay so HBD is "illegal" in Canada.
Now watch someone from Canada buy HBD on the internal market.
lol what are they gonna do about that?
They can't really do anything about it there are Hive nodes everywhere and anyone can boot one up if things really get crazy.
I agree and Govt. is the Problem this is why we do Crypto............
Famous Ronald Reagan Quotes and speeches: “The top 9 most terrifying words in the English Language are: I'm from the government, and I'm here to help.”
It is so beautiful how decentralisation keeps us free from all the bullshit the centralised world has to face on a daily from the SEC and now from the Canadian government.
decentralisation is the biggest protest...its existence is so rebellious. My fear is that the CBDC will be used to monitor people's transactions and ownership. But what happens when people prefer using crypto to government fiat?
A new government underneath their skin. Satoshi was a genius!
https://leofinance.io/threads/@taskmaster4450le/re-leothreads-2b9aoxkf8
https://leofinance.io/threads/@bradleyarrow/re-leothreads-6qujqt
https://leofinance.io/threads/@globetrottergcc/re-leothreads-38xbtzpsg
https://leofinance.io/threads/@litguru/re-leothreads-lyuewy9g
The rewards earned on this comment will go directly to the people ( @taskmaster4450le, @bradleyarrow, @globetrottergcc, @litguru ) sharing the post on LeoThreads.
~~~ embed:1628843001672876032 twitter metadata:MTQxMzE2MTcyOTEwNjc3NjA2NXx8aHR0cHM6Ly90d2l0dGVyLmNvbS8xNDEzMTYxNzI5MTA2Nzc2MDY1L3N0YXR1cy8xNjI4ODQzMDAxNjcyODc2MDMyfA== ~~~
The rewards earned on this comment will go directly to the people( @taskmaster4450le, @no-advice, @seckorama ) sharing the post on Twitter as long as they are registered with @poshtoken. Sign up at https://hiveposh.com.
Stablecoins are the future and HBD will be the most important Stablecoin.
Informative.
It may impact the price of hive for the short time.
I love to see this dance with regulators. They can't even define 90% of things related to crypto yet they try to battle it. So silly. Still, we need to keep an eye on this because you never know how desperate they will become.
Thanks for sharing this piece, I always appreciate your insight, I can see you really understand how these things work. Learned so much about Hive from articles like this.
Thank you for such comforting words. I love to see how governments will deal with a decentralized entity like Hive.
Congratulations @taskmaster4450! You have completed the following achievement on the Hive blockchain And have been rewarded with New badge(s)
Your next target is to reach 470000 upvotes.
You can view your badges on your board and compare yourself to others in the Ranking
If you no longer want to receive notifications, reply to this comment with the word
STOPTo support your work, I also upvoted your post!
Check out our last posts:
$HBD is most definitely establishing the grounds and use cases to welcome those who want to use our already underrated tech. Regulation may be a challenge for us, but the way we're designed would make it harder for them. It feels like we are more bulletproof compared to other blockchains.
Posted Using LeoFinance Beta
Interesting times!
weird, because most of the "scam-pool" to mine pseudo-BTC are Canadian Based.. so I'm asking myself who they really are protecting.. 🤔
This is all about their own digital currency coming out as CBDC's. they are clearing the path laying down the rules and knocking everyone out the way.
Posted Using LeoFinance Beta
Thank you for this important and clear article. It never stops with these clowns up here in Canadia. Sorry aboot that, eh. Fortunately, we'll keep running circles around them and adapting our strategies.
The Canadian monetary system seems like it is a conservative version following the American lead, but younger brother enough to zig when the big guy zags just to be its own individual. A little more wieldy and can start out quicker but we will see.
I still can’t see any stable government adopting any of this without building a huge stake so that it can manipulate it like it does fiat.
🅖ᴏᴏᴅ ᴄᴏɴᴛᴇɴᴛ✔
🗳🅨ᴏᴜ ɢᴏᴛ ᴍʏ ᴠᴏᴛᴇ ✔
🤜🤛🅖ᴏᴏᴅ ᴊᴏʙ✔
Uhhh oh.. so what do I do with HBD burn it?
Sort of like trying to regulate the wind, isn't it? Obviously they prefer fiat backed crypto. That's something that they can control...
This post has been manually curated by the VYB curation project
One elephant in the room is the proven risk of stake manipulation. One does not need regulations to direct PoS, just a good fiat printing press. JS taught us all that lesson in a most painful fashion. Some choose to ignore it, thinking the new bosses are somehow different than the old ones. Others, like myself, have been turned to Bitcoin Maximalists from the experience.
That's really good!
I think it could hamper HBD depending on how may countries refuse to recognise it as a form of payment. It looks like there will be far more that will go with the Canadian/Israeli principles as that is where this is heading. Yes we can convert our HBD back to Hive but most likely not using HBD as a payment option for purchases in the real world. I know some countries have businesses taking and accepting it already, but cannot see the majority following this path. Businesses will be forced to accept what is legal and will not risk anything else as why would they. We just have to wait and see how this pans out as there may be options to change things with HBD making it legal if deemed illegal.
Posted Using LeoFinance Beta
Excellent article, Taskmaster. I agree with everything you said in here. It is obvious to me, that the government of Canada has no concept of what a decentralized stablecoin actually represents, let alone how it works. Unlike USDC, USDT, BUSD, there is no legal entity that can be sanctioned, no address to subpoena, and no people who are targets of the OFAC or associated entities.
Sooner or later, $HBD will have its day in the sun, since all the other fiat-backed/pegged stablecoins will all be targeted for regulation in the banking system via the on and off-ramps. Luckily, there are already merchants accepting $HIVE & $HBD as forms of payment for goods and services, and HivePay has the potential to replace Stripe and ShopifyPay as an e-commerce payments method outside of the control of regulators, which is a golden goose in my view, since e-commerce is the way of the world.
Posted Using LeoFinance Beta
Been watching that very closely, really crazy. They better use HBD.
Sure there will be some businesses that might accept HIVE or HBD, but try paying your utilities bills with it.
It might not be impossible, but would likely involve a convoluted path to do it. This is where more focus needs to go, how to interface with the everyday world.
I'd like to hear people's suggested solutions.
Oh Canada sung for the wrong reasons, sadness, not pride, I hope they get off the road to autocracy and back to democracy
Posted Using LeoFinance Beta