What the Exit of Facebook's Diem Means for Bank Stablecoins

Source: American Banker

Meta's ambitions to back a cryptocurrency appear finished for now after the sale of the Diem stablecoin's assets, and the implications go beyond one company's retreat from the market. Diem has sold its technology assets to Silvergate Capital for $182 million. The federal government has signaled that it will likely require stablecoin issuers to be either chartered banks or regulated in a nearly identical manner. That places existing chartered banks, including Silvergate, in a potentially favorable position over nonbank stablecoin issuers.

Even with Meta out of the conversation, regulators are poised to write rules for stablecoins, a task that's taking on a greater urgency as stablecoin transactions soar, according to experts who specialize in blockchain and cryptocurrency. Congress is unlikely to pass a law governing nonbank stablecoins, leaving bank regulators largely responsible for stablecoin oversight.

Stablecoin transactions executed from one address to another on a public blockchain surpassed $5.5 trillion in 2021, according to Guidehouse and Messari. That's up from $1.35 trillion in 2020 and $250 billion in 2019. That growth has fueled concerns among regulators that an economic crisis in the stablecoin sector could spread into other financial markets if the stablecoin issuers need to quickly cover losses in their investments. (American Banker, Jan. 31)