Recently proposed changes to the 2024 National Defense Authorization Act (NDAA) could pose significant challenges for stablecoin issuers, including USDC, according to Berenberg analyst Mark Palmer. These changes revolve around the introduction of strict know-your-customer (KYC) and anti-money laundering (AML) measures that may be beyond the operational capacity of stablecoin providers to comply.
New amendments proposed under the NDAA would empower the U.S. Treasury Secretary to develop comprehensive review standards for crypto assets. The purpose of these standards is to strengthen supervision and ensure strict compliance with laws on money laundering and international sanctions.
Palmer warned that if the proposed amendment persists in the final version of the NDAA, it could cause major problems for stablecoin issuers.
He emphasized that the identity of stablecoin holders can only be determined at two distinct stages: when the asset is issued and when it is redeemed. This feature makes the potential implementation of proposed regulatory measures a cumbersome process for all parties involved.
The analyst further speculated that the passage of the amendment could lead to a significant drop in USDC market capitalization.
This development could pose a huge challenge for entities like Coinbase, a well-known digital currency exchange that relies heavily on USDC transactions.
In the first quarter of this fiscal year, interest income from USDC accounted for 27% of Coinbase’s net profit. The introduction of stringent regulatory requirements could hamper the ability of such platforms to continue to generate significant revenue from stablecoin-based businesses.
In short, the impending developments surrounding the NDAA and its potential impact on the cryptocurrency industry (and stablecoin issuers in particular) warrant close attention.
What is happening could have a profound impact on the trajectory of digital assets in financial markets, with implications for many stakeholders in the ecosystem.