Title Page
FINTECH NOTE
Regulating the Crypto Ecosystem
The Case of Stablecoins and Arrangements
Prepared by Parma Bains, Arif Ismail, Fabiana Melo, and Nobuyasu Sugimoto
September 2022
Copyright Page
©2022 International Monetary Fund
Regulating the Crypto Ecosystem: The Case of Stablecoins and Arrangements
Note/2022/008
Parma Bains, Arif Ismail, Fabiana Melo, and Nobuyasa Sugimoto*
DISCLAIMER: Fintech Notes offer practical advice from IMF staff members to policymakers on important issues. The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
RECOMMENDED CITATION: Bains, Parma, Arif Ismail, Fabiana Melo, and Nobuyasa Sugimoto. 2022. “Regulating the Crypto Ecosystem: The Case of Stablecoins and Arrangements.” IMF Fintech Note 2022/008, International Monetary Fund, Washington, DC.
| ISBN: | 979–8-40022–167-5 (Paper) 979–8-40021–997-9 (ePub) 979–8-40022–169-9 (PDF) |
| JEL Classification Numbers: | D18, E26, E42, F31, G28, G18 , O30 |
| Keywords: | stablecoin; DLT; crypto-asset; DeFi; Tether; TerraUSD; FSB; CPMI-IOSCO; IOSCO; regulation; Economic sectors; Emerging technologies; Financial crises; Financial sector policy and analysis; Financial sector stability; Financial services; Fintech; Systemic risk; Technology |
| Authors’ email addresses: | PBains@imf.org AIsmail@imf.org FMelo@imf.org NSugimoto@imf.org |
| ISBN: | 979–8-40022–167-5 (Paper) 979–8-40021–997-9 (ePub) 979–8-40022–169-9 (PDF) |
| JEL Classification Numbers: | D18, E26, E42, F31, G28, G18 , O30 |
| Keywords: | stablecoin; DLT; crypto-asset; DeFi; Tether; TerraUSD; FSB; CPMI-IOSCO; IOSCO; regulation; Economic sectors; Emerging technologies; Financial crises; Financial sector policy and analysis; Financial sector stability; Financial services; Fintech; Systemic risk; Technology |
| Authors’ email addresses: | PBains@imf.org AIsmail@imf.org FMelo@imf.org NSugimoto@imf.org |
Contents
Acronyms/Glossary
Executive Summary
Introduction
Scope
Why Stablecoin Regulation Matters
I. The Stablecoin Ecosystem: Components and Risks
II. Issuance, Redemption, and Stabilization
Challenges and Risks
■ a) Reserve Composition, Allocation, and Management
■ b) Reserves Custody
Considerations for Regulatory Responses
III. Transfer
Challenges and Risks
Considerations for Regulatory Responses
IV. Access
Conclusion
References
BOXES
1. US President’s Working Group on Financial Markets and Executive Order on Ensuring Responsible Development of Digital Assets
2. Stablecoins Issued by a Commercial Bank and Deposit Tokenization
3. Tether and Its Reserves
4. Failures of Algorithmic Stablecoins
5. Stablecoins and Legal Uncertainty
6. Stablecoins and Lessons from Money Market Funds and E-Money Regulations
7. Stablecoins and Deposit Insurance
8. Guidance on the Application of the Principles for Financial Market Infrasctructures to Stablecoin Arrangements
9. Cybersecurity and Operational Risk
FIGURES
1. The Growth of Stablecoins by Market Capitalization
TABLES
1. Recommendations for Prudential and Conduct Regulation of the Crypto Ecosystem: Stablecoins
Acronyms/Glossary
| AML | Anti–Money Laundering |
| CFT | Combating the Financing of Terrorism |
| CBDC | Central Bank Digital Currency |
| CPMI | Committee on Payments and Market Infrastructure |
| DeFi | Decentralized Finance |
| DEX | Decentralized Exchange |
| DIS | Deposit Insurance System |
| DLT | Distributed Ledger Technology |
| FDIC | Federal Deposit Insurance Corporation (US) |
| FMI | Financial Market Infrastructure |
| FSB | Financial Stability Board |
| FSOC | Financial Stability Oversight Council (US) |
| GFSR | Global Financial Stability Report |
| IMF | International Monetary Fund |
| IOSCO | International Organization of Securities Commissions |
| MMF | Money Market Fund |
| PFMI | Principles for Financial Market Infrastructures |
| SA | Stablecoin Arrangement |
| SSB | Standard Setting Body |
| USDT | Tether |
| UST | TerraUSD |
The authors would like to thank Tobias Adrian for his guidance, and Marina Moretti, Jay Surti, Tommaso-Mancini Griffoli, Agnija Jekabsone, Caroline Wu, Jan Nolte, Marianne Bechara, Juan Sebastian Viancha Trujillo, and Cristina Cuervo for their comments and contributions to this note.