By Dan Burstein, General Counsel & Chief Compliance Officer, Paxos
We are in the midst of a monumental shift of financial market infrastructure. The future of an open, digital economy rests on upgraded infrastructure replacing antiquated banking systems. At the heart of this transition is the adoption of stablecoins — digital dollars that are accessible to anyone at any time.
At this key inflection point, it’s crucial for consumers, enterprises, service providers, and regulators to fully understand the dynamics dictating prominent stablecoins’ operations, oversight (or lack thereof) and reserving practices.
At Paxos, we believe the only way to establish and maintain safety and transparency for customers is through rigorous oversight from a prudential regulator.
There is a critical difference between being licensed or registered and being regulated. An issuer that holds a state money transmitter license (like USDC’s issuer, Circle) is required to adhere to specific state rules in order to offer its product to state residents.
The state licensors provide certain supervision over the issuer but not over the stablecoin product nor over the issuer’s reserves. Without comprehensive regulatory oversight of its stablecoin reserves, the issuer can invest reserves however it sees fit.
Licensing and registration does not equal regulation. Before using any stablecoin, it’s critical to understand if the issuer is being held accountable by a prudential regulator. If not, your funds and consumer protections are at risk.
To learn more about Paxos’s regulatory approach to stablecoins and how that compares to USDC and Tether, you can read more here.