Gu Yanxi: A brief analysis of the impact of the new regulations of the U.S. Currency Supervision Bureau on Libra and other stable coins (www.blockcast.cc)

The new regulations will promote the birth of more digital dollar stablecoins, which will increase competition for the Libra dollar stablecoin.

Original title: “The Impact of the New Regulations of the U.S. Currency Supervision Bureau on Global Digital Stable Coins”
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry

The Office of the Comptroller of Currency (OCC) has just issued a new regulation that allows banks in the US federal system to provide mortgage asset management services for private parties to issue digital stablecoins. Previously, a special application was required to obtain this qualification, but now any bank in the federal system can provide this service. Therefore, this will prompt more private organizations to provide the market with digital dollar stablecoins based on their own brands. In addition to digital dollar stablecoins such as USDC, PAX and GUSD in the current market, there will be more such dollar stablecoins. The digital dollar stablecoin will therefore circulate in the market like a commodity. In addition, I think this new regulation will have the following effects on the market.

Impact on the dollar

This new OCC regulation will definitely have a positive effect on the promotion and use of the US dollar on a global scale. The current form of the US dollar can be divided into two types: physical and electronic accounting. For US dollar banknotes and coins, it can circulate freely around the world without restrictions. As for the U.S. dollar that is circulated by electronic accounting, it must be circulated within the geographic scope of the regulatory license and payment system. Most of the U.S. dollars in the world are circulated through electronic accounting. However, in the current global economic activities, there are still some areas that are under relevant regulatory licenses, but are under-served due to the limitations of the payment system. And such an area is the area that the digital dollar stablecoin can reach. Therefore, for the U.S. dollar, the circulation and use of the digital dollar stablecoin will help the U.S. dollar be used in more economic activities, thereby enhancing the U.S. dollar’s influence in the global financial and economic system.

Impact on Libra

This new OCC regulation will surely promote the production of more brands of digital dollar stablecoins, which will increase competition for Libra dollar stablecoins. The digital dollar stable currency competition will be carried out on a more equal basis. However, I think the Libra USD stablecoin will still dominate this type of product. An important factor for a product to compete successfully in the market is how well the market understands it. This factor is even more important than the function of the product itself. No matter how advanced a product is and how superior its cost performance is, if the market does not understand it, it will not be able to occupy a favorable position in the market, especially when the product enters in the later stage of market development. For the product of the digital dollar stablecoin, its function is certain, and any brand of digital dollar stablecoin only provides the same function. Therefore, the market’s awareness of the brand directly determines the degree of promotion of this product in the market. In view of the global influence of Facebook and Libra Association members and the reputation that Libra has established on a global scale, the Libra digital dollar stable currency is relatively easy to be accepted by the market. Since then, the digital dollar stablecoins that appeared again did not have enough market visibility, so it was difficult to compete with Libra. So even though OCC’s new regulations allow more participants to provide digital dollar stablecoins, I think Libra will still be the winner of this type of product.

Impact on other stablecoins

I believe that central banks have a clear judgment on the impact of this new OCC regulation. In order to ensure the influence of its own legal currency in global financial and economic activities, it will take more active measures to promote the development of its own digital currency. There are two measures in this regard, one is to accelerate the promotion of their own CBDC, and the other is also to adopt this measure of OCC, allowing private institutions to issue digital stablecoins on the basis of their own legal currency. Or the two measures are used together.

I think that the underlying infrastructure that supports the circulation of stablecoins is more important than stablecoins. So I always think that Libra’s digital stablecoin is more like a Trojan horse. The biggest threat to the existing financial market is its underlying blockchain. If the underlying blockchain of Libra is used globally, the value of a certain stable currency circulating on it will be greatly reduced. Due to the high liquidity of the digital currency supported on this chain, there is very high liquidity between digital currency and digital currency, and between digital currency and digital assets, which can realize convenient exchange at any time. The main function of digital currency is therefore a settlement tool, and its value storage function will be reduced. When users make payments on the chain, as long as there is an acceptable and usable value measurement unit, the transaction needs can be met. The user can exchange the digital currency in his hand for other digital currencies or digital assets that he believes are more necessary or valuable.

Therefore, for other digital stablecoins, the underlying blockchain used and the institutions and users that can be attracted on this chain determine the market competitiveness of digital stablecoins issued on this chain. There can be one or more digital stable coins in circulation on this chain. Since the Libra digital dollar stablecoin is circulated on its own underlying blockchain, the Libra digital dollar stablecoin cannot compete with such digital stablecoins. In this sense, I think this new OCC regulation will not have much impact on stablecoins that may be produced in Southeast Asia that compete with Libra.