U.S. Treasury Officials Identify Their Most Urgent Risks Posed By Stablecoins

September 17, 2021 03:00 PM
Crypto Story of the Day

Crypto Story of the Day



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Crypto Story of the Day

According to Bloomberg, U.S. Treasury officials have identified what they view as the most urgent risks posed by stablecoins. Officials are also said to be readying a “policy framework” for stablecoins, due to be released in the coming weeks. 

Bloomberg, which cited “people with knowledge,” writes that “[e]nsuring investors can reliably move money in and out of tokens is a top concern for officials” working on “a policy framework.” 

The sources also noted that the work isn’t yet complete, but that officials are preparing a report with recommendations that will be delivered to the President’s Working Group on Financial Markets (PWOG). That body includes Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and SEC Chairman Gary Gensler. 

Regulators working on the effort are also concerned that “runs” on cryptocurrencies could threaten financial stability and that some stablecoins could scale “dangerously fast.” According to Bloomberg, Treasury officials are paying specific attention to stablecoin transaction processing and settlement, and whether these processes change based on “market conditions.”

Also among the officials’ worries is how to manage the growth of tokens launched by larger tech firms, such as Facebook’s Diem. Furthermore, officials are also said to be discussing launching a review by the Financial Stability Oversight Council (FSOC) focusing on whether stablecoins pose a broader economic threat. 

Bloomberg reported the potential launch of such an investigation earlier this month. According to the outlet’s reporting at the time, following “weeks” of deliberation, officials were nearing a decision on launching the investigation. Should the FSOC deem stablecoins in general, or any token specifically, a systemic threat, tougher rules and greater monitoring could be introduced.

During testimony before the U.S. Senate on Tuesday, the SEC Chairman said that stablecoins “may well be securities.” Tether, or USDt, is the largest stablecoin by market cap at USD 68 billion. It’s followed by USDC, which has a USD 29 billion market cap. Binance’s BUSD has a market cap of USD 12 billion. USDC’s uptake has been most pronounced in DeFi and relatively muted for non-crypto purposes. 

Google search data suggests that interest in USDt is highest in countries where traditional access to USD may be hampered for some, such as Cuba, Turkey, China, and Laos. 

Bloomberg’s reporting comes at a moment of scrutiny of the crypto space following public statements made by Gensler over the past few weeks and this week’s Senate testimony. Having said that, the direction of U.S. regulation towards stablecoins is unclear based on Bloomberg’s reporting. 

Stablecoins, and their perceived risks, however, have been a fixation of regulators for some time. For example, the U.S. Senate held hearings into Facebook’s planned stablecoin in 2019 before the project was anywhere near launching. At the same time, the use of USDC and USDt outside of crypto seems relatively scant, especially in the U.S., where plenty of regulated products offer “digital dollars,” such as Venmo and Cash App. Nevertheless, anxiety of any impending crypto regulation tends to be overstated.

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