- Chainalysis has advocated stablecoin regulation to reduce crypto-related crime and promote adoption
- In a recent report, the blockchain analysis firm highlighted the dominance of US-based stablecoins
- The company says proper regulation would reduce crypto-related crime and increase mass market adoption
Blockchain analytics firm Chainlaysis has talked up the potential benefits of stablecoin regulation, saying that it would reduce crypto-related crime and boost adoption. In its annual report on the geography of cryptocurrency, Chainalysys noted that dollar-denominated stablecoin use dominates the market, putting the onus on the US to take the lead in regulating the sector. Such steps are already being taken, and Chainalysis, for one, takes a positive view of such action, if done in a balanced way.
US-dollar-denominated Stablecoins Still Rule the Space
In its 2023 Geography of Cryptocurrency Report, Chainlaysis says that stablecoins have emerged as a dominant force in the world of cryptocurrencies, accounting for more than half of on-chain transaction volume involving centralized services between June 2023 and July 2022. Over 90% of this activity revolves around US dollar-pegged stablecoins, with their widespread adoption capturing the attention of US regulators who want to exert control over these assets due to their reliance on USD-denominated reserves.
The company adds that, given the history of cryptocurrency use in criminal activities, including those that pose national security threats, regulatory oversight can play a pivotal role in mitigating cryptocurrency-related crimes, particularly as stablecoins represent a significant portion of crypto transactions.
Stablecoin regulation also presents an opportunity for regulators to ensure that the United States remains a hub for cryptocurrency businesses, Chainalysis adds, thereby facilitating the global expansion of the digital economy using the US dollar.
However, its data indicates a shift in stablecoin activity away from US-licensed entities. The majority of stablecoin inflows to the 50 largest crypto services have moved from US-licensed services to non-US licensed counterparts, reversing the trend observed in late 2022 and early 2023. As of June, more than half (54.6%) of stablecoin inflows to these top services were directed to non-US licensed exchanges.
Users Looking Further Afield
While US entities initially played a role in legitimizing and propelling the stablecoin market, an increasing number of crypto users are engaging with foreign-based trading platforms and issuers. This shift poses challenges, as it diminishes the US government’s capacity for stablecoin oversight and deprives American consumers of opportunities to utilize stablecoins with the protections offered by US regulations.
In response to these developments, several stablecoin bills have been proposed in Congress, aiming to provide clarity and regulatory frameworks for payment stablecoins, consumer protection, and innovation promotion. However, the key challenge for policymakers is to strike the right balance between safeguarding consumers and fostering the growth of crypto markets and innovation.
Proper Regulation Needed Soon
In Chainalysis’ report, Jason Somensatto, Head of North America Public Policy at the outfit, emphasizes the importance of resolving regulatory debates swiftly to support global competition and necessary regulation. He highlights the transparency inherent in blockchain technology, which empowers regulators, including those in the US, to efficiently investigate and combat illicit activities.
This transparency also enhances sanctions enforcement, enabling participants in the crypto ecosystem to screen for and detect activities involving sanctioned entities. Somensatto adds that time is of the essence in addressing these critical regulatory issues while the sector is still relatively small.
