Regulating Asset-Backed Stablecoin Issuers

Despite the experimental nature of the blockchain from which stablecoins are issued, the business of asset-based stablecoin issuers, such as Tether (USDT), Circle (USDC), and Binance (BUSD), is neither new nor innovative. We show that USDC and BUSD are composed of assets that resemble constant net asset value government money market funds. However, the assets of USDT, the largest stablecoin, which invests in commercial paper and risky assets, resemble the constant net asset value money market mutual funds that were banned in the EU subsequent to the global financial crisis. Regulations on crypto asset markets extend the field of application of the electronic money directive to stablecoins. But none of the stablecoin issuers discussed in this article would qualify for the license of an electronic money institution because they do not allow individual redemptions, are unlikely to respect the 2% equity capital ratio, and do not keep 30% of their funds in a separate account in a credit institution. Moreover, the new regulations do not allow issuers of stablecoins to apply for money market fund licenses.