Limited KYC Checks for Stablecoins Add to 'Lack of Regulatory Clarity', Users Claim

  • Twitter user Whalepool argued that KYC checks for stablecoins are only performed at the time of "creation/redemption" and not during "on-chain" transactions.
  • Cryptocurrency regulations remain unclear as these are still in their early development stages.

Twitter user Whalepool, which claims to be a “community of day traders” focused mainly on bitcoin (BTC), argued today via the microblogging platform that all stablecoins, which are supposedly backed by USD, including Circle’s (USDC), True USD (TUSD), Gemini Dollar (GUSD), and the PAX Standard Token (PAX) do not facilitate anti-money laundering (AML) and know-your-customer (KYC) transfers “on the blockchain.”

According to Whalepool, these checks are performed only “at creation/redemption.” Once the stablecoins are in circulation, users are able to move them to any Ethereum address - without having to go through any KYC checks.

"Self-Regulation", Not "State Coercion"

In order to support their claim, Whalepool shared some “important facts” that CryptoGlobe had reported about the Paxos Standard token. The day traders highlighted this particular part: “Paxos Standard has been designed as an Ethereum token written according to the ERC-20 protocol, so that anyone with an Ethereum wallet will be able to send and receive Paxos Standard tokens."

Whalepool, which states that it represents a diverse group of cryptocurrency traders including students and entrepreneurs, claims to advocate, or support, self-regulation and not what it describes as “state coercion.” Notably, it is not only the PAX stablecoin that is not subject to “on-chain” KYC checks, but also transactions involving all other stablecoins such as Tether (USDT).

"Lack Of Regulatory Clarity"

Currently, there appears to be a “lack of clarity” regarding cryptocurrency regulations - which is one of the main factors cited by BNP Paribas’ and Capgemini’s World Payments report that may potentially inhibit the mass adoption of blockchain-based payments systems.

The report, produced after executives from leading European organizations were surveyed, found that over 83% of respondents said the premature regulatory landscape for blockchain-enabled payments systems is significantly limiting its use at the enterprise level.

As CryptoGlobe reported, Sarah Olsen, Gemini’s head of business development, argued the world’s digital currency market is currently immature - which is why it’s extremely volatile. Olsen explained that the markets are experiencing “underlying friction” as traders convert from cryptocurrency to fiat money (and vice versa).

Stabelcoins Expected To Bridge Gap Between Crypto And Fiat

One of the issues involved here, according to Olsen, is that traditional fiat currency is only supposed to “move” during normal banking hours. Although she claims that stablecoins such as the GUSD help bridge these kinds of gaps, there is still a great degree of uncertainty in the nascent crypto markets.

As CryptoGlobe covered, bitcoin (BTC) and other major cryptocurrencies surged over 10% on October 15 due largely to a massive USDT selloff. Investors began selling their USDT holdings in exchange for other cryptos amid heightened fears regarding Tether and Bifinex’s banking operations.

While some might think the new stablecoins could be used as a “flight to safety” by crypto traders, it’s possible their users may begin to have similar concerns about them - which could again lead to wild fluctuations in crypto prices.