Treasury Department’s FSOC Says Stablecoins Represent Potential Risk to US Financial Stability

The U.S. Treasury Division’s Monetary Stability Oversight Council (FSOC) says the position of stablecoins as a bridge between the digital asset market and the broader monetary system deserves continued consideration.

In his Annual report 2024the FSOC says that stablecoins – commodity or currency-linked cryptocurrencies – don’t present enough safety in opposition to threat and failure.

“Because the Council has acknowledged lately, stablecoins proceed to symbolize a possible threat to monetary stability as they’re acutely susceptible to runs with out acceptable threat administration requirements.”

The FSOC says the shortage of safeguards turns into extra regarding as a result of greater than half of the stablecoin sector’s whole market worth is managed by a single firm: USDT issuer Tether.

USDT’s whole market capitalization is roughly $138 billion, which represents roughly 70% of the worldwide stablecoin market, in response to FSOC.

“Provided that firm’s market dominance, its failure, if it continues to develop, might disrupt the economic system crypto asset market and create domino results for the normal monetary system.”

The council says many stablecoin issuers additionally function exterior prudential rules framework, which will increase the chance of fraud.

“Whereas just a few are topic to state-level oversight that requires common reporting, many present restricted verifiable details about their property and reserve administration practices.”

Amid the continued development of the crypto market, the FSOC urges lawmakers to enact legal guidelines to restrict dangers associated to stablecoins.

“The Council recommends that Congress go laws making a complete federal authorities prudential framework for stablecoin issuers to handle threat, fee system dangers, market integrity and investor and shopper safety, together with for entities offering providers crucial to the functioning of the stablecoin association.

Learn the total report right here.

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Featured picture: Shutterstock/Teo Tarras/Natalia Siiatovskaia