US regulators call for increased scrutiny of stablecoin issuers

Posted: 2 November 2021 4:23 pm

A comprehensive study released by American regulators has urged policymakers to act quickly in regards to the growing stablecoin sector.

  • The report authors believe that as the digital currency market grows, the use of stablecoins will expand and eventually seep into the realm of daily payments.
  • The report notes that stablecoins can potentially be used for illegal activities such as speculative trading of cryptocurrencies and illegal cross-border transactions.
  • Over the past year, the total market cap of the stablecoin sector has grown by a whopping 500%.

A joint report released by the President's Working Group on Financial Markets and other United States' government agencies has asked members of Congress to create regulatory guidelines for stablecoin issuers that are as stringent and comprehensive as those currently being used to govern banks and other financial institutions.

This latest development comes in the wake of stablecoins continuing to grow in popularity across the United States, potentially posing a massive systemic threat to the country's already well-developed payments ecosystem. Over the course of the last year, the combined market cap of popular US dollar-hinged stablecoins such as USDT (Tether), USD Coin and BUSD (Binance USD) has grown over 500% from around $24 billion to over $125 billion.

The report states that the urgent need to monitor the stablecoin market is because these assets can potentially be used in relation to the trading of speculative digital assets, allowing for the movement of funds between various cryptocurrency exchanges as well as decentralised trading platforms. The report goes on to read:

"The use of stablecoins to move easily between digital asset platforms or in decentralized finance (DeFi) arrangements, presents risks related to market integrity and investor protection. These market integrity and investor protection risks encompass possible fraud and misconduct in digital asset trading, including market manipulation, insider trading, and front running, as well as a lack of trading or price transparency."

Lastly, the authors also believe that as the digital currency market continues to grow, the use of stablecoins could very well expand to the realm of daily payments by householders as well as retailers alike, an aspect that needs to be looked into immediately so as to prevent various legal issues from cropping up in the future.

What lies ahead?

One of the core recommendations issued by the regulatory bodies in their report is that members of Congress should "urgently" pass a law that will help establish a framework that requires stablecoin issuers to be subject to certain governance rules akin to those being followed by insured depository institutions.

Last but not least, it should also be pointed out that as per the report, the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have been afforded the ability to police stablecoin activity either as securities or derivatives offerings.

Interested in cryptocurrency? Learn more about the basics with our beginner's guide to Bitcoin, dive deeper by learning about Ethereum and see what blockchain can do with our simple guide to DeFi.

Disclosure: The author owns a range of cryptocurrencies at the time of writing

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