Stable Cryptocurrencies Might Face Strict Actions

Stable cryptocurrencies are ostensibly more secure than regular cryptocurrencies thanks to their relationships with less volatile assets. But US regulators seem unconvinced.

Reported Bloomberg reported that the Treasury and other federal agencies are about to launch a possible crackdown on stablecoins through a review from the Financial Stability Oversight Board.

US officials are discussing launching a formal review of whether Tether and other stablecoins threaten financial stability, and scrutiny that could dramatically increase oversight of a rapidly growing corner of the cryptocurrency market.

After weeks of deliberation, the Treasury and other federal agencies are close to deciding whether to conduct an examination by the Financial Stability Oversight Board.

The Financial Stability Oversight Board has the ability to designate companies or activities as a systemic threat to the financial system, a label that typically sets strict rules and oversight by regulators.

This designation is likely to be a game changer for stablecoins, which are essential to the cryptocurrency market because traders are using them extensively to buy Bitcoin and other virtual currencies.

And stablecoins boomed, with the value of the tokens now in circulation reaching over $120 billion. They are increasingly being used in transactions that resemble traditional financial products without offering the same level of consumer protection.

The distinguishing feature of stablecoins is that they are linked to fiat currencies. Which means that it is supposed to be immune to the price fluctuations that have plagued Bitcoin.

Tether and other companies achieve this by backing their tokens with assets such as the US dollar and corporate debt.

Also Read: Ukraine Legalizes Bitcoin

Stable Cryptocurrencies Might Face Strict Actions

The President’s Working Group on Financial Markets, led by Treasury Secretary Janet Yellen, has focused on Tether’s claims that it holds vast amounts of commercial paper.

At a private meeting held by US officials in July. They likened the situation to an unregulated money market mutual fund that could be subject to a chaotic influx of investors if cryptocurrencies fell.

The president’s working group plans to release stablecoin recommendations by December. and building consensus among relevant regulators that the FSB review is justified.

The FSB process includes a lengthy study and assessment of which federal agencies should respond and how.

The board can direct these agencies to intervene in the market and reduce the risks posed by stablecoin transactions.

While Tether is the most popular stablecoin. But there are several competitors, including Coinbase’s USDC, along with a dollar-pegged offering from Binance.

The scrutiny escalated with the spread of stablecoins. Coinbase made headlines by revealing that the SEC has threatened to sue it if it launches a product that would allow customers to earn 4 percent returns for lending USDC to other traders.

The Securities and Exchange Commission believes Coinbase’s proposal is an investment contract that must be registered with the agency. It is a view that the company strongly rejects.

Stablecoins face another threat from the US government, as the Federal Reserve is debating whether to launch its own digital currency.

Also Read: Bitcoin Drops As El Salvador Is Adopted As Currency

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button