US federal agencies have taken the first concrete step towards the possible regulation of stablecoins, due to concerns that they could threaten the economy.
Risks and opportunities for stablecoins in the US economy
The lengthy report says that, if designed well and properly regulated, stablecoins could help by ensuring faster, more efficient and more inclusive payments, but that at the same time they present a number of risks.
The report explicitly mentions speculation on crypto exchanges and investments in DeFi, identifying risks especially regarding market integrity and investor protection due to fraud or misconduct such as market manipulation, insider trading and lack of transparency. It also highlights the risk that, due to mismanagement, they may lose their value, creating losses for their holders.
It also speculates that, due to “complex relationships or significant amounts of leverage”, there could also be risks to the financial system as a whole.
Another issue raised relates to illicit finance, for example in relation to anti-money laundering (AML) and counter-terrorist financing (CFT) regulations.
No ban on stablecoins
Nevertheless, the Treasury in this report does not envisage banning, blocking or restricting stablecoins at all, but rather bringing their use within the legal parameters that also apply to fiat currencies.
In fact, the report goes so far as to ask legislators to allow public agencies that supervise financial markets to supervise issuers of stablecoins as well, as they already do for banks, for example, which are required to meet strong capital requirements and are subject to constant supervision.
The agencies also say that the rapid growth of stablecoins increases the urgency of action in this area.
Specifically, they call for Congress to pass new regulations that would require stablecoin issuers to become full-fledged banks, with insured deposits, capital and liquidity requirements, and Fed oversight. They are also calling for a ban on private companies that do not meet these requirements from placing stablecoins on the markets.
According to Bloomberg, however, it is by no means certain that Congress will actually accept these requests, not least because Democrats and Republicans have rarely managed to reach agreement in recent years. He adds that lawmakers often have no incentive to intervene to prevent damage, and instead often intervene only when the damage is already evident.