The US is currently engaging in a clampdown of the stablecoin industry, thanks to heightened pressure to manage the crypto industry following the collapse of FTX.

The SEC sent a letter to Paxos to explain to them that they may be pressing charges thanks to Paxos’ issuance of BUSD violating investor protections by issuing an unregistered security in the form of BUSD.

The EU is also doing a stablecoin clampdown

The EU is also conducting their own version of a stablecoin clampdown, and has led the way in issuing a series of regulations.

Thus far, the regulations from the EU have made it clear that decentralised and permissionless stablecoins such as MakerDAO’s DAI are not legitimate, and will not be able to conform with the required degrees of regulation. The same applies for Liquity’s LUSD, which depends entirely on being overcollateralised by ETH.

The legal dependence on centralised stablecoins could be problematic for the future adoption and stability of the DeFi ecosystem, as has been evidenced by the lack of clarity surrounding USDT and more recently BUSD.

What does this mean for innovation?

There are differing views within governments and regulatory bodies around the world about the benefits of stablecoins.

Many Bitcoin evangelists such as Michael Saylor have made the case that the stablecoin industry is a huge boon for the US. The fact that the overwhelming majority of stablecoins are pegged to the USD rather than other currencies is a testament to the market demand for dollars, and can help to cement the US’ positions as a global reserve currency – something that has been growing particularly contentious over the course of the last few years.

Certainly, when one compares the US to China, the country has several advantages. Firstly, they aren’t banning crypto en masse, but also they have a far more libertarian culture when it comes to adopting new technologies, and a far larger voting block interested in seeing the innovation thrive.

The clampdown thus far hasn’t been with the goal of completely eradicating stablecoins, and some analysts such as Luke Broyles predict that the US government will never be too harsh against centralised stablecoins such as USDC because they are backed by US treasury bills, which helps the government to finance itself through debt.

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