Why is the US government attacking stablecoins?

Welcome to the Cryptohunt Jam, where you learn – in just a minute or two a day – what is happening in crypto and other game-changing ideas. As always: In plain English.

New York officials just told a crypto company to stop listing one of the largest stablecoins, Binance’s BUSD. And to make things even more interesting, the Securities and Exchange Commission is planning to sue the same company for violating securities laws.

That’s a lot to unpack, so let’s start from the beginning.

This crypto company, called Paxos, is letting its users buy BUSD on their platform. BUSD is a stablecoin, which means that 1 BUSD tries to be almost exactly 1 US Dollar at any given time.

So far, this seems like a really solid idea – so why would governments object to this?

It helps to understand that their actions are well-intended: They are trying to protect average consumers from falling into investment traps or taking risks they don’t fully understand. The fact that they are starting with stablecoins is no coincidence: Those are not as stable as the name may suggest. \

We’ve covered all the problems in past episodes, but in summary, there are two main concerns: Either the issuer of the stablecoin does not have the money to back it all up – as may be the case with Tether, and even BUSD – or the technology may not be able to handle a run on the bank, which brought down TerraUSD for example.

And now the government is starting to wake up, and its attacking the weakest link in the chain: The companies that let people buy and sell those stablecoins. Because the stablecoins themselves live on blockchains, which are by their very nature basically impossible to shut down.

And if you’ve always wondered: If a stablecoin is following a currency like the US Dollar closely, could the entire world move to the US Dollar thanks to them? Stay tuned for tomorrow, where we’ll talk about that.

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