The general concept behind a “stablecoin” is the creation of a cryptocurrency that does not fluctuate in price like Bitcoin and the others.
However, the fact that projects can employ different models to create stablecoins means that there could be cases where regulators consider them to be a “security” according to Valerie Szczepanik, Senior Advisor for Digital Assets at the United States Securities and Exchanges Commission (SEC).
Decrypt Media reports that the Commissioner shared these thoughts while speaking at Austin’s SXSW conference.
First, Valerie made a distinction between the so-called “security” stablecoin and two other versions that projects could adapt.
The two versions include stablecoins that are backed by real estate or other real-world assets while the other is the model where the coins are backed by fiat currency held in reserves with a partner bank.
Moving on to the case when a stablecoin “might be getting into the land of securities,” Valerie explained that projects who wish to operate this model controls the value of the stablecoin through “some kind of pricing mechanism.”
According to her, such mechanisms “may include tying the issuance, creation or redemption of another type of digital asset to the stablecoin” or any other means that makes it possible for the project to control price fluctuation.
She finally urged projects to meet with the U.S SEC to ask for permission before developing their stablecoin, instead of seeking regulatory assistance in the aftermath of creating a token that violates securities law.
The latest comments made by the SEC Commissioner calls to mind the shut down of the Basis stablecoin project in December citing regulatory concerns regarding the nature of their token.
Basis wanted to create a stablecoin tied to another digital token (secondary token). A select group of investors will receive dividends for holding the secondary token while the primary token (stablecoin) is sold in the crypto market with the value of 1Coin to 1 USD.
However, regulators deemed that the stablecoin would be a security token, thus, leading to the early demise of the Basis project.
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