Popular stablecoins, or digital assets designed to have a “relatively stable price,” are of interest to policymakers. While these cryptocurrency units are more stable than their counterparts, a recent Financial Services Oversight Council (FSOC) report suggests they could pose risks to financial markets.
precisely, Financial Stability Oversight Board Annual Report 2024 It argues that issuers lack trustworthy information about their holdings and policies on reserve management practices.
The Council believes that transparency may expose bondholders to risk and prevent analysts from conducting accurate market analyses. As such, the Council urges the US Congress to discuss and pass new legislation that can regulate stablecoins and their issuers.
The Financial Stability Council (FSOC) is calling for a new regulatory framework for stablecoins
This is not the first time there A call to organizeA comprehensive federal framework for these digital assets is not new. Outgoing Treasury Secretary Janet Yellen also called for new legislation to be reviewed and enacted in February 2024. Yellen’s recommendations last February were based on the Financial Stability Oversight Council report and recommendations made two years ago.
The FSOC’s latest report on the potential impacts of stablecoins on the financial system was released on Friday, December 6th. According to the council, these stablecoins threaten the country’s economic stability and are at risk of run-off due to the absence of risk management standards.
The Council also raises the issue of transparency, which is an issue that is absent among the people stablecoins And its sources. The Financial Stability Oversight Council says the lack of transparency in holdings and reserves policies will impact bondholders and prevent them from conducting informed market analysis.
Tether is still in the cryptocurrency spotlight
Tether remains the top stablecoin, with a market capitalization of $138 billion as of this writing. While the FSOC report did not specifically identify Tether as an issue, this stablecoin has faced issues and scrutiny from the industry.
2/17) The probability of collapse here is greater than in Terra Luna!
Which makes it one of the biggest existential threats to cryptocurrencies as a whole
We must also trust that they are keeping guarantees worth $118 billion without evidence!
Even after the CFTC fined Tether for lying about its reserves in 2021… pic.twitter.com/KoJFbyjRj1
-Justin Bons (@Justin_Bons) September 14, 2024
Tether has been screwed over its failure to provide transparent audits that verify that its token is backed 1:1 by the US dollar or other assets.
Some critics say Tether could collapse if it does not maintain sufficient reserves, which could disrupt the broader cryptocurrency market. Justin Bones, founder of Cyber Capital, called out Tether last September 14 over its lack of third-party audits. In a post on Twitter/X, Bones said that Tether represents an “existential threat” to the cryptocurrency sector,” and added that the issuer had failed to provide an audit since 2015.
Intensifying calls to issue legislation
Aside from growing calls for scrutiny and accountability, many in the industry are calling for new legislation for stablecoins. The Financial Stability Oversight Committee (FSOC) warns that some stablecoin issues are dominating the market, saying this could disrupt the industry and may also impact the financial system. While some issuers are supervised, many companies operate outside the federal framework.
In response, the Financial Stability Oversight Committee recommends new legislation to cover this problem stablecoins To address potential risks and issues. The Council calls on the US Congress to formulate a stable framework for issuers and delegate rule-setting powers to federal financial regulators over the spot market for digital assets.
The Financial Stability Oversight Committee cautions that if no legislation is passed, it stands ready to consider other steps available to manage risks.
Featured image from DALL-E, chart from TradingView