Kevin Werbach, the chairperson of legal studies and business ethics at the University of Pennsylvania's Wharton School, said that as the U.S. irons out necessary digital asset regulations, it should make a distinction between stablecoin issuers that are based in the U.S. and those that are not, and should also take into consideration which companies have been pro-compliance and those that have not. While some analysts have expressed concerns that regulatory crackdowns in the U.S. could push innovation overseas, Werbach told the Federal Newswire that he does not believe that will necessarily be the case.
“There is a need for a more explicit federal regulatory framework, but that can be done without pushing activity overseas,” Werbach told Federal Newswire. “While some see a coming crackdown on all stablecoins, I interpret the recent action against BUSD to be an effort to go after stablecoins that seek the benefit of access to the U.S., but are affiliated with offshore unregulated actors like Binance.”
The U.S. Securities and Exchange Commission (SEC) has ramped up its enforcement actions in the cryptocurrency industry following the collapse and November bankruptcy filing of crypto exchange FTX, and it has recently targeted stablecoins amidst an ongoing debate about whether or not the digital assets should be regulated as securities, Investopedia reported. In February, regulators directed Paxos to stop issuing the third-largest stablecoin in circulation, Binance USD (BUSD), which had a market value of $12 billion.
Bankruptcy Judge Michael Wiles wrote in a March 11 opinion that the absence of clear regulatory guidelines for digital asset issuers in the U.S. has created a "highly uncertain" environment for those companies, many of which, Wiles pointed out, have been operating for years "without being subject to clear and well-defined regulatory requirements."
"Regulators themselves cannot seem to agree as to whether cryptocurrencies are commodities that may be subject to regulation by the CFTC, or whether they are securities that are subject to securities laws, or neither, or even on what criteria should be applied in making the decision. This uncertainty has persisted despite the fact that cryptocurrency exchanges have been around for a number of years," Wiles said.
He added that the SEC's actions might foreshadow "a wider regulatory assault," but also pointed out that the SEC and the CFTC have sometimes acted in ways that contradict each other when it comes to the crypto industry.
Some prominent members of the crypto community have been calling for clear U.S. regulatory guidelines, such as Changpeng Zhao, the Canadian CEO and founder of Binance, the world's largest crypto exchange by volume. CZ said in a blog post last year that believing "regulation is bad for crypto" is a "simplistic view," and he believes that well-guided regulations serve to protect consumers while still encouraging growth and innovation in the crypto sector.
CZ wrote in a 2022 year-end blog post that despite the turbulence of the last year for the crypto industry, the industry made great progress in regulatory compliance, which is vital for both user security and encouraging mainstream adoption.
“I am proud to say that Binance has been and will remain at the forefront of this momentum,” CZ wrote.
CZ said he understands why regulators have grown increasingly skeptical, and that it will be a challenge to regain investors’ trust, but he believes “these are short-term challenges that will prove beneficial for the blockchain space in the long run.” He called for greater transparency, compliance, openness to regulation and prioritization of user safety across the industry to overcome those challenges.
Werbach's research focuses on internet policy, blockchain and digital assets. He is a fellow at the Global Institute for Communications and an observing member of the Global Blockchain Business Council.
