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By Hourad Afsar

The European Union (EU) has recently published a new study titled "Crypto Assets -Key developments, regulatory concerns and responses"highlighting new developments regarding crypto-assets and trouble EU regulators face regarding the use and adoption of cryptocurrencies.

The study outlines key regulatory concerns around the continuing use of crypto-assets for money laundering and terrorist financing, the massive growth of private "tokens" used to raise funds, and to the emergence of stablecoins and central bank digital currencies (CBDC's) . It addresses those concerns and notable developments in the crypto industry while suggesting preferred policy responses to them.

The document differentiates between lawful and unlawful markets, respectively with cryptos existing on crypto exchanges as speculative financial instruments as opposed to activities happening online in the darknet marketplaces where you have the buying and selling of weapons, money laundering, evasion of capital controls or ransomware attacks.

Stablecoins and CBDC are presented as possible game changers for payments with a number of considerations and key fundamental differences. CBDC should not be mistaken for crypto-assets since they are sovereign in nature and not private assets.

“The issuance of crypto-assets relies on the use of DLT or similar technology, the issuance of CBDCs is not contingent upon the use of any specific technology. Cryptocurrencies, lack the status of legal currencies, the opposite would be true for CBDCs. CBDCs are envisioned by most to be a new form of central bank money ”

CBDCs can be anonymous and AML/CFT compliant, replacing anonymous/untraceable cash with a public and more traceable CBDC and so eliminating the risk of money laundering and criminal activities. Although interesting, it is unlikely that such case will have the required political backing anytime soon as central banks must strike the balance between user integrity and compliance with AML/CTF standards.

Stablecoins unlike CBDCs are not a just a lab experiment. The first stablecoin, Tether (USDT) dates back from 2014 with other projects like Gemini Dollar (GUSD) and Paxos Standard (PAX).

“A new class of cryptocurrencies which offer price stability and/or are backed by reserve asset(s), [combining] the instant processing and security of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies. At the most basic level, stablecoins can be described as a new type of cryptocurrencies that is not just perceived as something of value by its users, but is actually backed by something of value."


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