According to Bloomberg report, officials are crafting a policy framework which is planned to be released in the coming weeks. Citing the primary concern, as always, to ensure that investors can reliably move money in and out of tokens.
The anonymous insiders familiar with the matter, are worried that a “fire-sale run on crypto assets could threaten financial stability and that certain stablecoins could scale up dangerously fast.”
The Financial Stability Oversight Council is also preparing a formal review into whether stablecoins pose an economic threat.
In the report, officials are looking into how stablecoin transactions are processed and settled and whether market conditions have an impact.
Tomicah Tillemann, global head of policy at a crypto fund run by venture capital giant Andreessen Horowitz, said:
“It is significant and very consequential that we are witnessing early steps to create a regulatory framework around digital assets. That’s a big deal.”
The report is aimed at President’s Working Group on Financial Markets, including important agency heads such as Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and Securities and Exchange Commissioner Chair Gary Gensler.
Yellen called for urgency in regulating stablecoins after stating that they are not adequately supervised earlier this year. Gary Gensler was following similar lines, in early August, stating that regulators must act to protect investors from fraud.
Acting Comptroller of the Currency, Michael Hsu, said regulators are looking into Tether’s commercial papers to see whether each USDT token was really backed by the equivalent of one U.S. dollar.
Tether has repeatedly issued assurances that its reserves are fully backed but has not yet produced a full independent audit.
Tether remains the market leader with a current supply of 69.4 billion, according to the Tether Transparency report. This is close to the all-time high for USDT, which tapped 70 billion earlier this week.
Of that total, 36 billion or 51.8% is based on the Tron network, with 33.8 billion or 48.7% running on Ethereum. USDT supply has grown by 232% since the beginning of the year.
Rival stablecoin, USDC, from Circle currently has 29.3 billion in circulation after gaining 651% in terms of supply growth so far in 2021.
According to the Times, here are the most likely options that regulators could use to corral stablecoins:
1. Designate them as a risk to the system. Under the Dodd Frank Act, regulators have the power to deem payments activity as “systemically risky” and thus under regulatory control even if the activity only poses a potential risk down the road.
2. Call them “securities.” The article notes U.S. Securities and Exchange Commission Gary Gensler recently said that stablecoins “may well be securities” and thus potentially subject to SEC regulation.
3. Treat them as money market mutual funds, which some experts say they resemble and which are regulated.
4. Regulate them like they’re banks, potentially bringing stablecoins under the regulatory oversight of the Office of the Comptroller of Currency. This option could lead to deposit insurance for stablecoin investors and thus diffuse a major criticism of stablecoins by some, namely that investors are unprotected should the assets underpinning the stablecoins go bad or if there’s a run on the stablecoin.
5. Issue a competing Central Bank Digital Currency (CBDC), something the Federal Reserve is studying. However, given privacy concerns related to CBDCs a U.S. CBDC is unlikely to substantially attract users away from stablecoins, the article observes.
Regardless of what path U.S. regulators take, they can’t go it alone, the article observes. Without international cooperation on stablecoin regulation, the stablecoins could just move elsewhere. Such international regulation might come in 2023, the Times noted, when the global Financial Stability Board is targeting final adoption of stablecoin regulations it’s working on.
Source: Stablecoins In US Treasury's Agenda In Latest Regulatory Risk Assessment – Fintechs.fi