Cryptos et stablecoins

Question 1

What are crypto-assets commonly defined as? What is the primary use of crypto-assets?

Answer 1

Crypto-assets are commonly defined as digital assets based on blockchain technology.

Although they serve marginally as a means of payment, crypto-assets are mainly used as an asset class offering returns and diversification, albeit with high volatility.

Question 2

What are stablecoins and their role in the crypto sector?

Answer 2

Stablecoins, whose value is supposedly backed by other assets (fiat currencies most of time), have significantly developed and play a pivotal role in the crypto sector by offering gateways to traditional financial sectors.

Question 3

How are crypto-assets used in financial transactions?

Answer 3

Crypto-assets are used for fund transfers, particularly in international transactions, and an important financial ecosystem has developed around them, attracting institutional investors in addition to individual investors.

Question 4

What is the concept of decentralized finance in relation to crypto-assets?

Answer 4

Decentralized finance (DeFi) is a concept at the heart of crypto-assets, proposed to reduce frictions related to financial intermediation.

Question 5

What challenges does the crypto-asset market face? What vulnerabilities are present in the crypto-asset ecosystem?

Answer 5

The crypto-asset market faces persistent limitations such as high fees, slow transactions, high energy costs, and security issues, hindering its development.

The ecosystem has vulnerabilities due to its high concentration, liquidity risks, and exposure to market risks, posing threats to financial stability.

Question 6

How does the market size of crypto-assets compare to other asset classes as of June 2022?

Answer 6

As of June 2022, the crypto-asset market size was about $800 billion, modest compared to other major asset classes like the New York Stock Exchange (about $25,000 billion) or the gold market (about $11,000 billion).

Question 7

What measures are being taken to regulate the crypto-asset sector?

Answer 7

Regulation of the sector is underway through national laws like the Pacte law in France, the MiCA regulation at the European level, and various prudential regulations, aiming to provide a conducive framework for sector and technology development while protecting investors and financial stability and combating money laundering and terrorism financing.

Question 8

How has the ownership of cryptocurrencies in France changed since 2020? What was the percentage of French people owning cryptocurrencies in 2022?

Answer 8

The ownership increased from 3% in 2020 to 8% in 2021, and then to 9.4% in 2022.

Question 9

How cautious are French investors with their crypto investments? Which are the preferred crypto platforms in France?

Answer 9

On average, French investors do not invest more than 11% of their savings in cryptocurrencies, with 70% investing up to 5,000 euros.

Binance is the most used platform (39%), followed by Coinbase (28%), which does not have a PSAN registration with the AMF. FinTechs like Revolut and Lydia are also popular.

Question 10

What trend is observed in the NFT market among the French?

Answer 10

Despite a market decline in 2022, the number of French people owning NFTs doubled from 2% to 4%. NFTs offered by brands are particularly popular.

Question 11

What recent events have prompted increased regulation of cryptoassets in the US?

Answer 11

The bankruptcy of FTX and the collapse of Terra and Luna led to increased regulation by US authorities, including the SEC.

Question 12

What indicates the resilience of Bitcoin and other cryptoassets despite increased regulation?

Answer 12

Despite regulatory actions, there has been no significant panic in the Bitcoin and cryptoasset markets, suggesting market resilience.

Question 13

How does the US’s approach to cryptoasset regulation differ from Europe’s? How does the EU’s approach to stablecoins differ from the US’s approach?

Answer 13

In the US, regulation often follows market development, whereas in Europe, legislation is put in place earlier.

The EU has chosen strict regulation on stablecoins, whereas the US allows private stablecoin issuers to play a role similar to a digital dollar.

Question 14

What is the MiCA project in the European Union? What are some concerns regarding the EU’s MiCA project?

Answer 14

MiCA (Markets in Crypto-Assets Regulation) is a project in the EU aiming to regulate cryptoasset providers, inspired by France’s 2019 Pacte Law.

There are concerns that MiCA’s regulation might push businesses and investors towards more welcoming jurisdictions.

Question 15

What is the main purpose of stablecoins? How much has the market capitalization of stablecoins grown since 2020?

Answer 15

Stablecoins are crypto-assets designed to maintain a stable value against a fiat currency, usually the US dollar.

The market capitalization of stablecoins has grown substantially, reaching around $150 billion.

Question 16

What assets back stablecoins to maintain their value? What implications do stablecoins have for financial stability? What does this research underline about the influence of stablecoins?

Answer 16

Stablecoins are backed by near-money assets held in reserves, such as US treasuries, bank deposits, or commercial papers (CP).

The financing of firms through CP issuance due to stablecoin demand increases exposure to roll-over risk, which has consequences for financial stability.

The research underlines the growing influence of stablecoins on financial markets and the real economy, particularly through their reserve assets and pegging mechanisms, emphasizing the need to understand and monitor their impact on economic and financial stability. 

Question 17

How is USDC different from other stablecoins? What is Circle’s Full-Reserve Model? What is the legal position of USDC?

Answer 17

Unlike other stablecoins, Circle prefers to consider USDC as electronic money, notable for its stability and integration into the traditional financial system.

Circle follows a risk management model that ensures a balance between the USDC in circulation and financial reserves, mainly consisting of cash and US Treasury bonds.

Circle claims that USDC, as electronic money, is protected from regulatory threats and passes legal tests, always being used in a 1:1 ratio with the American dollar without any expectation of financial profit.

Question 18

How does USDC compare to central bank digital currencies (CBDCs)?

Answer 18

USDC is already operational and used in over 190 countries, unlike many CBDCs, which are still in the experimental phase in most countries.

Question 19

What are Circle’s future plans and expansion?

Answer 19

Despite canceling a merger and an IPO, Circle aims to become a publicly traded company. They are focusing on expansion, including investing in Singapore and considering Europe with the Euro Coin (EUROC) for institutional investors.

Question 20

How did Binance allegedly violate U.S. law according to the CFTC? What do the CFTC’s allegations include regarding internal communications at Binance?

Answer 20

Binance allegedly violated U.S. law by not adhering to U.S. registration and regulatory requirements.

The allegations include references to internal communications suggesting that Binance was aware of potentially illegal activities facilitated through its platform.

Question 21

What is the “Triangle of Ruptures” in finance mentioned by Villeroy de Galhau?

Answer 21

The “Triangle of Ruptures” refers to :

• new actors,
• blockchain-based settlement assets,
• and new decentralized market infrastructures in finance,

offering faster and less costly services but also posing risks of fragmentation and systemic risk.

Question 22

What are the two false contradictions Villeroy de Galhau discusses?

Answer 22

The first is between financial stability and innovation, where he argues that stability is essential for sustainable innovation and should not imply stagnation. The second contradiction is between public and private actors, emphasizing that central banks should be seen not just as conservative regulators but also as partners in innovation.

Question 23

What is the significance of an international common framework for crypto-asset regulation according to Villeroy de Galhau?

Answer 23

He highlights the importance of an international common framework to regulate crypto-assets, with coordination between the G7, the Financial Stability Board (CSF), and the G20.

Question 24

What does Villeroy de Galhau say about the Central Bank Digital Currency (CBDC)?

Answer 24

He discusses the Bank of France’s experiments with CBDC, including the development of a permissioned blockchain and the use of AI, and addresses the attention given to retail CBDCs, suggesting that it’s important to keep an open mind about this new form of “public money.” He also talks about wholesale CBDCs, which are less publicized but important for cross-border payments and the tokenization of securities.

Question 25

What are the two groups under the standard structure for classifying cryptoassets? What are the requirements for stablecoins to be included in Group 1? What is the exposure limit for Group 2 cryptoassets according to the new standard?

Answer 25

Group 1 Cryptoassets include tokenized traditional assets and cryptoassets with effective stabilization mechanisms. Group 2 Cryptoassets are those that fail to meet Group 1 classification conditions, posing higher risks.

Stablecoins must pass a Redemption Risk Test and meet Supervision/Regulation requirements, ensuring that they are issued by supervised and regulated entities with robust redemption rights and governance.

Banks’ total exposure to Group 2 cryptoassets must not exceed 2% of their Tier 1 capital and should generally be lower than 1%.

Question 26

What is the Infrastructure Risk Add-On in the new standard?

Answer 26

The Infrastructure Risk Add-On is an addition to the risk-weighted assets to cover infrastructure risks for all Group 1 cryptoassets, which authorities can activate based on observed weaknesses in the cryptoassets’ infrastructure.

Question 27

What aspects will the Committee monitor and review regarding the standard’s implementation? What is the significance of this new standard for the banking sector?

Answer 27

The Committee will monitor implementation and effects of the standard, focusing on issues like statistical tests for stablecoins, permissionless blockchains, and calibration of the Group 2 exposure limit.

The standard represents a significant step in regulating the banking sector’s exposure to cryptoassets, addressing potential risks while allowing for innovation in this rapidly evolving area.