Stablecoins

Why in news?

During the inaugural address at the Kautilya Economic Conclave, the Union Finance Minister stated that countries need to prepare for stablecoins.

• Stablecoins – Form of cryptocurrency that attempt to maintain stable prices as they are pegged to an underlying asset, such as a basket of currencies or precious metals or another financial instrument.

A cryptocurrency is a digital currency that is secured by cryptography, operating on a blockchain and makes it nearly impossible to counterfeit.

• Primary goal – They are designed to bridge the gap between the unpredictability of popular cryptocurrencies like Bitcoin (BTC) and the stability required for everyday financial transactions.
• Aim – To tackle the price fluctuations by tying the value of cryptocurrencies to more stable assets, usually fiat currencies.
• Types of stablecoin – Fiat-collateralized, commodity-backed, crypto-collateralized, and algorithmic.
• Third party Audit – Stablecoins involve third-party auditors for verification of reserves, which introduces risk in a system aiming to minimize third-party reliance.
• Benefits – Stablecoins are designed for everyday use, enable easy value transfer, support financial services, and maintain stability through collateral reserves or algorithmic supply control.
• Current Status of Cryptocurrency in India –
  • Legal Status – Cryptocurrencies and other Virtual Digital Assets (VDA) are not recognized as legal tender in India.
  • This means they cannot be used as official currency for payments, but buying, selling, and holding these assets is legal.
  • Taxation – A 30% tax is levied on the income generated from the transfer of any virtual digital asset (cryptocurrency).
  • An 18% Goods and Services Tax (GST) is applied to the services provided by crypto platforms.
  • Regulation – There is no overarching regulatory framework governing cryptocurrencies.
  • Despite recent taxation measures, India's cryptocurrency market remains largely unregulated.

To know more about Virtual Digital Asset (VDA) Regulations in India, Click here

References

1. The Hindu | Nations must prepare to deal with stablecoins
2. Investopedia | Stablecoins