Emily Walker
Stablecoins, which are digital currencies aimed at maintaining a stable price, are gaining attention from government officials. Although these coins are generally more stable than others, a report by the Financial Services Oversight Council (FSOC) indicates they may still introduce risks to financial markets.
According to the FSOC 2024 Annual Report, there is a notable lack of reliable information regarding the reserves and management strategies of stablecoin issuers.
The Council expresses concerns that insufficient transparency might hinder holders and analysts from executing accurate market assessments. Consequently, the Council is pressuring US Congress to contemplate and enact new regulations for stablecoins and their providers.
FSOC Advocates for Regulatory Framework for Stablecoins
This is not the first instance of a call to action for regulations, as discussions about a comprehensive federal framework for these digital currencies have emerged before. Former Treasury Secretary Janet Yellen also stressed the need for new legislation in February 2024, referring back to earlier FSOC recommendations.
The FSOC’s latest report concerning the implications of stablecoins on the economy was published on December 6th. The Council raised alarms about these digital currencies potentially posing threats to the nation’s financial stability, citing a lack of risk management protocols.
Additionally, the FSOC underscored the critical issue of transparency among stablecoins and their issuers. The absence of transparency regarding reserves and holdings can impair market analysis for holders.
Tether Remains Center Stage in Crypto Discussions
As of now, Tether retains its title as the leading stablecoin with a market capitalization of $138 billion. Although the FSOC report did not directly label Tether as problematic, it has faced significant scrutiny in the industry.
2/17) The potential for collapse here is greater than Terra Luna!
Making it one of the biggest existential threats to crypto as a whole
As we have to trust they hold $118B in collateral without proof!
Even after the CFTC fined Tether for lying about their reserves in 2021… pic.twitter.com/KoJFbyjRj1
— Justin Bons (@Justin_Bons) September 14, 2024
Critics point out Tether’s failure to conduct transparent audits that confirm its tokens are adequately backed by USD or equivalent assets.
Some warn that without sufficient reserves, Tether could face collapse, leading to significant repercussions for the wider crypto ecosystem. Cyber Capital’s Justin Bons criticized Tether on September 14th for its lack of third-party audits, asserting it poses an “existential threat” to the cryptocurrency market, especially given that no audit has occurred since 2015.
Increased Calls for New Legislation
In light of the growing demand for oversight and accountability, many in the sector are advocating for fresh legislation concerning stablecoins. The FSOC has raised red flags regarding the dominance of some stablecoin issuers, suggesting they could cause disruptions in the industry and potentially affect the larger financial framework. While some issuers operate under regulation, numerous companies function outside any federal guidelines.
As a remedy, the FSOC is proposing new legislation focused on stablecoins to mitigate potential risks. They are calling on US Congress to establish a stablecoin framework for issuers and empower federal financial regulators to create rules governing the spot market for digital assets.
The FSOC warns of possible further actions to manage risks if no legislative measures are enacted.
Featured image from DALL-E, chart from TradingView