Regulators are preparing to impose strict new rules on the broader cryptocurrency market.
The U.S. Treasury Department is taking an especially close look at the broader risk stablecoins pose to the economy at large as regulators prepare to impose strict new rules on the broader cryptocurrency market.
Bloomberg on Thursday reported that “ensuring investors can reliably move money in and out of tokens is a top concern for officials crafting a policy framework set to be released in the coming weeks.”
They’re also concerned that stablecoins could quickly gain such widespread use that a failure could endanger financial stability, according to the September 16 report.
While none of these concerns are new — they date to the June 2019 announcement of Facebook’s Libra stablecoin project, since renamed Diem — recent reports that the Treasury and other agencies are considering opening an examination of the threats posed by the Financial Stability Oversight Council are, Bloomberg said.
Citing three anonymous sources, the report said that “how stablecoin transactions are processed and settled, and whether that changes based on market conditions” is of particular concern.
If the FSOC finds that stablecoins pose a systemic risk to the economy, it would bring in tougher regulation and more aggressive oversight by the various regulatory agencies.
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Stablecoins in the SEC Crosshairs
In testimony before the Senate Banking Committee on September 14, Securities and Exchange Commission Chairman Gary Gensler compared crypto to the “Wild West,” warning:
“We just don’t have enough investor protection in crypto finance, issuance, trading, or lending... This asset class is rife with fraud, scams, and abuse in certain applications.”
Tether is the largest of the stablecoins, with a $68.3 billion market capitalization currently, followed by USD Coin’s $29.2 billion, and Binance USD’s $12.7 billion. While currently used largely to buy and trade cryptocurrencies, stablecoins could easily be used for payments by consumers and by banks and other financial institutions to settle behind-the-scenes transactions.
Concerns about the SEC trying to claim authority over stablecoins in particular grew after Gensler referred to stablecoins as “stable value coins” in his testimony.
That led longtime cryptocurrency advocate and Avanti Bank & Trust CEO Caitlin Long to tweet:
“Instead of #stablecoins he's calling them "stable value coins." Stable value funds are SEC-regulated so…”
