Israel's Central Bank Proposes Rules for Stablecoins Including 100% Reserve

[Hydrogen]

The Bank of Israel also recommends a ban on algorithmic stablecoins if they become widely used for payments.

The Bank of Israel on Wednesday published principles for regulating stablecoin activity in the country, which lays out the central bank's recommendations for supervising crypto linked to the value of other assets like the U.S. dollar.

The document follows the publication of guidelines for digital asset regulation from the country's Ministry of Finance in November. The goal of the central bank's proposed regulations is to allow stablecoin use in the country "while managing the risk inherent in using them, and adjusting the consumer protections and prudential requirements," the document said.

Although the document refers to the collapse of algorithmic stablecoin terraUSD in May as a motivation for establishing regulations, the recommendations only target stablecoins attached to other assets and backed by collateral, not algorithms. The central bank said algorithmic stablecoins like terraUSD are not used widely for payments, but indicated it may prohibit them if they become too popular.

"If, nevertheless, this type of currency becomes a common means of payment, issuers will be required to hold full collateral, and in fact the issuance of a bearer currency that uses an algorithmic stabilization mechanism will be prohibited," the document said in Hebrew.

The central bank recommends requiring stablecoin issuers to maintain reserves matching the amount of crypto in circulation, covering "100 percent of its liabilities to the coin holders." The recommendation aligns with that of other jurisdictions like Hong Kong, which plans to regulate asset-backed stablecoins by June this year.

The recommendations include splitting supervisory roles between multiple regulators to enhance efficiency. The central bank proposes that stablecoins issuers should be required to obtain licenses to operate. It adds that issuers of larger stablecoins that could have "systemic importance" should be licensed by the Banking Supervision Department while others should be supervised by the Capital Market Authority.

Payments-focused stablecoins "shall be overseen by the payment systems oversight function at the Bank of Israel," according to the document.

The proposed rules are open to public comment until March 15, after which the bank will make required changes and recommend legislation to the government.


https://www.coindesk.com/policy/2023/02/22/israels-central-bank-proposes-rules-for-stablecoins-including-100-reserve-requirement/

....


100% Reserve!

Tether stablecoin has been investigated for its capacity of reserve since 2017. The story of stablecoins is slowly but surely transforming into an epic.

Is bitcoin prominent in israel? Awhile ago I remember reading a statistic claiming that more than 95% of israel's population had been vaccinated against COVID-19. There are some who claim israel has the highest average IQ of any nation on earth. If this is true, is it possible that a high percentage of israelis are technology and tech savvy enough to enjoy a high percentage of crypto mass adoption coupled with high rates of bitcoin HODL?

While I try to avoid being judgmental or drawing conclusions based on surface observations. I have noticed a high percentage of jews have the words "gold" and "silver" in their names. Long John Silver from Treasure Island. Terry Silver from karate kid and cobra kai. Perhaps in the future jews will abandon the "gold" and "silver" in their names and opt to include "bitcoin" or "crypto" instead?

[coupable]

The fixed reserve according to the volume of the currency will enable the safe use of it. The idea is not genius since it is assumed that all fixed currencies have backing in dollars. The idea is that there is no ability for the security and protection services to monitor these reserves. Government support will provide greater guarantees for users.
Israel is a leading country in the field of technology and certainly has the capabilities and expertise to launch the idea.

[Darker45]

I would hold myself from jumping into different conclusions. What is clear is that stablecoins should indeed have 100% reserve. The ratio should be 1:1. Whenever a stablecoin issuer mint a new single token, it should mean that another dollar has entered its reserve. Otherwise, it shouldn't be allowed to. This kind of regulatory policy is long overdue. This should have long been implemented, perhaps ever since stablecoins entered the crypto scene.

[Hispo]

This rule only seems to mention the future regulation on centralized stablecoins and algorithmic ones, but does not make clear what would Israel do in the case of coins like Dai, which are backed by ether and other cryptocurrency (over-collateral).

I assume they do not want or do not care the address that case yet, since the adoption for now tends toward coins like Tether, USDC and BUSD (in the case this latter manages to survive the SEC).

[Husires]

The strange thing is that the motive for the regulations was the collapse of terraUSD, and yet the regulatory framework did not address algorithmically stablecoins, which means that everything that happens is an attempt to distance the banking character from stablecoins.

In the sense that if stable currencies covered in dollars are banned, this means that digital assets are not linked to financial guarantees in banking systems, which makes the fluctuations more intense, especially if the price of Bitcoin declines significantly.

While I try to avoid being judgmental or drawing conclusions based on surface observations. I have noticed a high percentage of jews have the words "gold" and "silver" in their names. Long John Silver from Treasure Island. Terry Silver from karate kid and cobra kai. Perhaps in the future jews will abandon the "gold" and "silver" in their names and opt to include "bitcoin" or "crypto" instead?

It is a strange observation, but I think it is related to beliefs more than being a financial style, otherwise who would we hear of technical names or related to stocks.

[Smartprofit]

I would hold myself from jumping into different conclusions. What is clear is that stablecoins should indeed have 100% reserve. The ratio should be 1:1. Whenever a stablecoin issuer mint a new single token, it should mean that another dollar has entered its reserve. Otherwise, it shouldn't be allowed to. This kind of regulatory policy is long overdue. This should have long been implemented, perhaps ever since stablecoins entered the crypto scene.

Creating a 100% reserve of issued stablecoins is very beneficial for the users of these stablecoins.  

However, it is unlikely that the creators of stablecoins will be satisfied with the regulatory framework that requires them to make such sacrifices.  

If a stablecoin is not 100% backed by fiat currency, but is partially backed or backed not only by fiat currency, but also by cryptocurrency, then the creator of the stablecoin has the opportunity to make a very good profit.  

Flexibility and the possibility of financial maneuver are very important here.  The goal of the creators of stablecoins is to organize various financial schemes aimed at making a profit.  

The creators of stablecoins are not against fiat currencies - on the contrary, they want to have as much money as possible.

The legal framework of the State of Israel requiring the freezing of such a large amount of fiat money in reserves is unlikely to please the creators of stablecoins.

[kryptqnick]

When people use stablecoins, I think they expect the coins to not have any major price fluctuations, and they rely on the stability that the name promotes. So it seems reasonable to me that stablecoins should be backed up by something that minimises the risk of it crashing. Holding a full collateral is exactly the sort of thing that would ensure the stability of a stablecoin, and while it can be a problem for issuers, I do think that the users will benefit from that. As long as Israel doesn't target decentralized cryptocurrencies and doesn't require them to be backed up by anything, it's fine by me.

[Ucy]

The problem is stablecoin printed out of thin air & not backed by hard work like Bitcoin.
 I will strongly advise against PoS (Proof of Stake) based stablecoins. Use hardwork/PoW based ones instead. Then try and control the demand/supply to limit their ability to increase/decrease drastically in price. Hardwork based coins tend to continuously increase in value if supply is less than demand.
Perpetually low volatility Stablecoins based on hardwork = demand ≥ supply.

*Stablecoins backed by hardwork is still OK. Collateral = product of work.
The work should be properly done to increase the product and currency value.

* True/good Work = Solving problems properly.. (or solving problems properly without creating more problems)






True Intelligence comes when you fear the CREATOR and hate evil.
''The fear of GOD is begining of Wisdom. To hate evil is understanding" - Holy Bible

[Flexystar]

I am not sure why we are drawing the conclusions based on what literature states and what is the connection between myth and highly modern tech like blockchain with its coins. I mean, they are just coins and we can either accept them into our financial system or we can discard them from our financial system and enjoy what we have at our hands! Some brilliant mind created blockchain then some smart people using the tech to run their vehicles that is the bitcoin and altcoins and common people like you and me are using them to transact. It's simple formula and I dont really think we need some spiritual energy or text to let us know whether it is acceptable or not. (Or possible I have judged your statements in wrong way which will again change the entire context above)

There are some who claim israel has the highest average IQ of any nation on earth. If this is true, is it possible that a high percentage of israelis are technology and tech savvy enough to enjoy a high percentage of crypto mass adoption coupled with high rates of bitcoin HODL?

I just hope this is not really true or its kinda hard to digest for me. If there were such high IQ's then they would have been Bitcoin hotspot now however it is far west in the El Salvador where appropriate actions have been taken by the government and they are doing just fine with normal IQ. I don't really think having high IQ can lead people towards tech savy nations. If anyways all of them averagely have higher IQ's then it balance out the crowd to think about nigh parties and beach stuff with same pace but with different angle. It means nothing.

[hatshepsut93]

Banning algorithmic stablecoins is a good idea, history has shown that they are extremely fragile so a government wouldn't want their banks and economy engage with them, because in the end it will be government's job to bail out the banks.

And before people say that you can't ban crypto - in this case regulators wouldn't care if someone on darknet uses them, they just need to cut them from fiat economy.

[Darker45]

This rule only seems to mention the future regulation on centralized stablecoins and algorithmic ones, but does not make clear what would Israel do in the case of coins like Dai, which are backed by ether and other cryptocurrency (over-collateral).

I assume they do not want or do not care the address that case yet, since the adoption for now tends toward coins like Tether, USDC and BUSD (in the case this latter manages to survive the SEC).

Yeah, as a matter of fact, these proposed regulations are only targeting the likes of USDT and other fiat-backed stablecoins. Although they're learning lessons from the fall of an algorithmic stablecoin, since these algorithmic stablecoins are not widely used as payment, they could be left unattended for a while. I suppose this approach includes crypto-backed stablecoins like DAI, non-collateralized stablecoins, commodity-backed stablecoins, and others; although they singled out algorithmic stablecoins to be banned "if they become too popular."

~snip~

Creating a 100% reserve of issued stablecoins is very beneficial for the users of these stablecoins. 

However, it is unlikely that the creators of stablecoins will be satisfied with the regulatory framework that requires them to make such sacrifices. 

If a stablecoin is not 100% backed by fiat currency, but is partially backed or backed not only by fiat currency, but also by cryptocurrency, then the creator of the stablecoin has the opportunity to make a very good profit. 

Flexibility and the possibility of financial maneuver are very important here.  The goal of the creators of stablecoins is to organize various financial schemes aimed at making a profit. 

The creators of stablecoins are not against fiat currencies - on the contrary, they want to have as much money as possible.

The legal framework of the State of Israel requiring the freezing of such a large amount of fiat money in reserves is unlikely to please the creators of stablecoins.

Well, it's basically to protect consumers and stablecoin users. It's probably the safest way for them. It seems this is the primary concern of Israel's Central Bank. They're probably not inclined to look after the welfare of stablecoin issuers.

[Smartprofit]

The main blow from regulators will surely fall on stablecoins. 

Stablecoins were created in order to combine the traditional financial system and the new financial system based on the use of cryptocurrencies.  While the capitalization of cryptocurrencies was relatively small, regulators were indulgent about the spread of stablecoins. 

However, over time, the situation has changed dramatically.  Stablecoins have become direct competitors to fiat currencies. 

But the creators of stablecoins do not have the right to make laws and other regulations, unlike central banks.  Central Banks in their fight against stablecoins have the opportunity to use administrative resources.

[Lamkuthang]

This illustrates that regulations provide clarity, which will help build confidence in crypto assets, including stablecoins. The process of acquiring crypto assets is meant to be more transparent and the link between stable issuance of assets and settlement on the books will serve as a guarantee for all market participants. yes the hope will encourage more institutions, investors and companies to participate in this innovative sector.

Of course, there are a lot of questions around this new currency, and banks haven't publicly said when they will launch it but this could be seen as one of the many steps that need to be taken for stablecoins to pivot from fad to mainstream and be safer from regulation. .

[Argoo]

This rule only seems to mention the future regulation on centralized stablecoins and algorithmic ones, but does not make clear what would Israel do in the case of coins like Dai, which are backed by ether and other cryptocurrency (over-collateral).

I assume they do not want or do not care the address that case yet, since the adoption for now tends toward coins like Tether, USDC and BUSD (in the case this latter manages to survive the SEC).

Only in the first version of MakerDAO, only ETH could be deposited as collateral. In November 2019, the project community decided to switch to a multi-collateral system — that is, to allow users to use different cryptocurrencies for collateral. USDC, WBTC, MANA, USDP, LINK, YFI, GUSD, enBTC, and MATIC can currently be pledged on MakerDAO. Also in July 2022, MakerDAO became the first DeFi protocol to accept shares of public companies as collateral.

With regard to the above rules for regulating stablecoins by the Central Bank of Israel, they are quite acceptable. So far, the main thing is that stablecoins, backed by the currencies of different states, are being legalized and will freely circulate along with their fiat.

[avikz]

100% Reserve!

Lovely! Absolutely right direction! Firstly the need of a stablecoin is not really clear when we have decentralised cryptocurrencies available in the market and the stablecoins are absolutely centralized.

So when it is a centralised coin and the issuer is promising a certain value in it, it must be backed by some real world asset. So what Israel's Central Bank proposed, makes complete sense!

[FanEagle]

Israel is a bit lucky on that regard, because it is a bit of a fresh nation compared to most other nations. Before the second world war there was nearly nothing, just Palestine there and it wasn't a nation like Israel. Then afterwards, they built a nation with the knowledge of thousands of years of humanity, which allowed them to see what is better for their own nation, even if it is not good for others.

It means that the problems we have that comes from thousands of years of cultural problems, do not exists for them. Another reason why USA is so big as well, because they got a land at the size of whole Europe, that was untouched, and had thousands of human knowledge to make the most out of it.