Stablecoin Crisis: BIS New Guidance Challenges USDT and USDC

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After a downtown, crypto is facing another terror called regulatory interference. The Bank of International Settlements (BIS) has issued new guidance tightening criteria for stablecoins, specifically targeting those issued on permissionless blockchains like Tether’s USDT and Circle’s USDC. This move could impose significant restrictions on these widely used stablecoins. 

This is not good news for investors; let’s see how this event will impact these major stablecoins in the crypto arena. 

Stable War!

The crypto market saw substantial growth in the first half of 2024, with a total market cap reaching around $2.27 trillion, marking a 37.3% increase year-to-date. The bulk of these gains occurred in the first quarter, with a 60.2% rise, while the second quarter experienced a 14.3% drop. Despite past challenges, the stablecoin market has recovered, with a market cap of $161 billion as of June 30, 2024, a two-year high.

Basel Committee’s Report

On July 17, the Basel Committee on Banking Supervision released its final disclosure report on banks’ crypto-asset exposure, requiring banks to report on their crypto activities and liquidity requirements. The report also introduces stricter criteria for certain stablecoins to receive preferential “Group 1b” regulatory treatment, effective January 1, 2026. This could heavily impact permissionless stablecoins such as USDT and USDC.

Public vs. Private Blockchains

Custodian Bank’s CEO, Caitlin Long, took a jab on the BIS decision, pointing out that permissionless stablecoins are now excluded from use by banks, favoring permissioned stablecoins instead. She speculated that the United States might ignore this directive despite BIS’s previous leadership in the crypto sector.

In response, the Vitruvian Man, Crypto Enthusiast, suggests that banks will not easily give up their power and control over financial systems. He argues that using permissioned blockchains is a strategy for banks to maintain dominance. He believes that banks and governments would take extreme measures to retain control, implying that it is unrealistic to expect them to allow decentralized, permissionless blockchain systems to flourish willingly.

On the other hand, at Coinbase’s State of Crypto event, BlackRock’s Head of Digital Assets favored public blockchains over private ones. However, the BIS’s new advice supports permissioned stablecoins like JPMCoin. This could threaten permissionless stablecoins.

Future Implications

The BIS decision comes as the Hong Kong Monetary Authority releases consultation papers on a licensing regime for stablecoin issuers. Moreover, Fox Business reporter Eleanor Terret noted that initial proposals included USDC and others for preferential treatment. Still, the final guidance excludes all stablecoins issued on permissionless blockchains, posing a serious threat to many stablecoins.