Regulators Are Targeting Stablecoins Due to ‘Crazy Product Market Fit’: Compound’s Robert Leshner

Stablecoins have become the lifeblood of the crypto industry.

With a market cap of a whopping $150 billion, even after that collapse of Terra’s algorithmic stablecoin UST earlier this year, they could be one of crypto’s best current use cases.

At least according to one of the earliest DeFi founders.

“Whether you’re a retail user, a hedge fund, an exchange, or a company looking to make payments, stablecoins have crazy traction everywhere,” said Compound founder Robert Leshner decrypt at the Chainlink SmartCon in New York. “In a way, stablecoins have done what everyone expected Bitcoin to do.”

Launched in 2018, Compound is one of Crypto’s first decentralized lending and lending platforms, allowing users to earn returns on their idle tokens or take out crypto-backed loans.

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Today, Compound’s largest lending market is Circle’s USDC stablecoin. This shift came as no surprise to Leshner.

Stablecoins, he said, are “fundamentally better than the old ways of paying by sending money or ACH money or writing a paper check or using a credit card,” he said. “Stablecoins are superior. They are faster, they are cheaper, they are better and left to their own devices they will win and conquer everything.”

Regulators seem to have come to the same conclusion, and they do focused on stablecoins as a way to regulate the entire industry.

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Regulators are targeting stablecoins

The regulatory scrutiny primarily revolved around transparency and determining how these assets might affect traditional financial markets.

Tether, for example, has received negative attention for years because the company has been opaque about its reported 1:1 support with the US dollar. This lack of clarity has improved somewhat over the years with Tether deliver now monthly statements of assets; but the stablecoin issuer has never worked with a “Big Four” accounting firm.

Circle has struggled with similar issues and now expenditure a regular certificate.

In February of this year, Democratic Congresswoman Maxine Waters brought these risks to the fore while A House Financial Services Committee venturing into supporting stablecoins “could harm both regular users of these products and our financial system at large” before asking Congress to take action.

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More recently, researchers at the Bank of New York argued that the size of stablecoins, including those with traditional assets, require regulators to pay closer attention.

Despite these concerns, both stablecoins have grown in size. Tether’s USDT currently has a market cap of $68 billion, making it the third largest cryptocurrency after Bitcoin and Ethereum. Circle’s USDC is the fourth largest with a market cap of $45 billion.

As of October 2020, USDT was just $15 billion and USDC was just under $3 billion.

Growth of USDT (blue) and USDC (yellow) from October 12, 2020 to October 12, 2022. Source: CoinGecko.

These assets have grown by 353% and 1,400%, respectively, in just two years.

And that makes regulators nervous.

“If you’re a legislator right now, you look at stablecoins and you see something that’s tremendously successful,” Leshner said. “And it might worry you.”

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