U.S. Treasury officials reportedly identified a variety of risks posed to stablecoins. The government body is set to make recommendations for stricter rules surrounding cryptocurrencies. Stablecoins and cryptocurrencies supported by technology giants such as Facebook were also discussed. As stablecoins see increasing use, regulators are moving quickly to establish a framework…

Treasury focuses on stablecoins

According to statements made on Thursday, Treasury officials have identified several ways stablecoins can pose risks to investors and the wider public. According to anonymous sources cited in the report, ensuring that investors can securely enter and exit cryptocurrencies, whether through centralized or decentralized exchanges, will be a top priority.

Additionally, the Treasury expressed concern about a market sell-off causing widespread financial instability and how certain stablecoins could grow dangerously fast and outpace national currencies. In particular, sources have expressed concern about the growth of tokens backed by tech giants like Facebook, which is currently developing its own stablecoin called Diem.

While comments on stablecoins are currently little more than the Treasury’s recommendations, officials are said to be discussing plans for a more formal review by the Financial Stability Oversight Council. If it does, the council will closely evaluate whether stablecoins pose a threat.

Expected decision for cryptocurrencies may be closer

Regulatory attention to stable and dollar-stabilized cryptocurrencies is not unexpected. In July, US Treasury Secretary Janet Yellen met with the Financial Markets Working Group to discuss potential stablecoin regulations. The latest advice from Treasury officials suggests that regulatory decisions on stablecoins and the broader cryptocurrency market may be closer than expected.

Cryptocoin. com, stablecoin providers have faced increasing pressure from regulators and the crypto community over the past few months. Tether, the largest stablecoin by market value, is subject to scrutiny as to whether the USDT cryptocurrency is sufficiently backed by cash. In addition, Tether executives were investigated by the Justice Department in July for possible misconduct in the company’s early years.

Other stablecoin providers have not escaped scrutiny either

USD Coin, which is widely used on Coinbase, has recently been criticized for its lack of transparency on how it supports cryptocurrencies. While Coinbase initially stated that “every USDC is backed by a US dollar held in a bank account,” the company has since updated its website to include cash equivalents in support. Stablecoins form an integral part of the cryptocurrency ecosystem and are of great benefit to those who invest in cryptocurrencies or participate in decentralized finance. As such, US regulators are quickly identifying the risks associated with stablecoins before they are more widely adopted.

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Michael Lewis


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