Popular stablecoins, or digital assets designed to have a “stable value,” are being recognized by policymakers. Although these crypto units are more stable than their counterparts, a recent report by the Financial Services Oversight Council (FSOC) suggests that they may pose a risk to financial markets.
Specifically, the FSOC 2024 Annual Report states that issuers do not have reliable information about their holdings and policies and procedures for managing facilities.
The Council asserts that transparency may endanger shareholders and prevent analysts from making accurate market analyses. Therefore, the Council urges the US Congress to discuss and pass new legislation to regulate stablecoins and their issuers.
FSOC Calls for New Regulatory Framework for Stablecoins
This is not the first time there has been a call for regulation, and a comprehensive government framework for these digital assets is not new. Outgoing Treasury Secretary Janet Yellen also called for a review and passage of a new rule by February 2024. Yellen’s recommendations last February were based on the FSOC report and recommendations made two years earlier.
The latest FSOC report on the potential impacts of stablecoins on the financial system was released on Friday, December 6. According to the council, these stablecoins threaten the stability of the country’s economy and are at risk of operating due to the absence of risk management standards.
The council also raises the question of transparency, which is lacking between stablecoins and their issuers. The FSOC says that the lack of transparency in the policies of captives and reserves will affect owners and prevent them from analyzing markets with knowledge.
Tether Stays in the Crypto Spotlight
Tether remains the top stablecoin, with a market capitalization of $138 billion as of this writing. Although the FSOC report did not specifically identify Tether as a problem, the stablecoin has faced problems and industry scrutiny.
2/17) The chance of falling here is greater than Terra Luna!
Making it one of the biggest threats to crypto as a whole
As we should hope 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
Tether has been slammed for its failure to provide transparent audits that confirm its token is backed 1:1 by USD or other assets.
Some critics say that Tether could collapse if it doesn’t have enough liquidity, which would disrupt the broader crypto market. Cyber Capital founder Justin Bons slammed Tether last September 14 due to the lack of third-party audits. In a Twitter/X post, Bons asserted that Tether is an “existential threat” to the cryptocurrency sector,” and added that the issuer has failed to provide an audit since 2015.
Rules Calls Get Stronger
Despite increasing calls for scrutiny and accountability, many in the industry are calling for new stablecoin regulation. FSOC warns of market dominance in other stablecoin issues, saying these could disrupt the industry and potentially impact the financial system. While some issuers are subject to supervision, many companies operate outside of the government framework.
As a response, the FSOC is recommending a new rule to cover stablecoins to address potential risks and problems. The council is asking the US Congress to draft a stablecoin framework for issuers and authorize federal financial regulators with the power to rule over the local market for digital assets.
The FSOC warns that if no legislation is passed, it is ready to consider other available risk management measures.
Featured image from DALL-E, chart from TradingView