The Federal Reserve sees stablecoins as an area of concern due to the recent pressure on digital assets, noting that it has highlighted “structural instability in this rapidly growing sector.”
In Monetary Policy of June 17 reportThe agency said structural vulnerabilities remain in some money market funds, bond funds and stablecoins, but funding risks in local banks and broker-dealers are low.
Potential for regulation
The report states that stablecoins have grown exponentially in recent years to a valuation of over $180 billion in March 2022, with Tether (USDT), USD Coin (USDC) and Binance USD (BSUD) accounting for over 80% of the total market cost. .
The agency cited the collapse of TerraUSD (UST) to highlight the lack of regulation and standards for stablecoins that are not backed by secure and sufficiently liquid assets, adding that this creates risks for investors and potentially for the financial system, including the creation of such coins. vulnerable to potentially destabilizing runs.
The Fed says in the report:
“The collapse in the value of some stablecoins and the recent tensions in the markets for other digital assets demonstrate the fragility of such structures.”
The Fed report says that such vulnerabilities in these stablecoins could be further exacerbated by a lack of transparency about the riskiness and liquidity of the assets backing such coins. He warned that the increased use of stablecoins, especially in trading other leveraged cryptocurrencies, could increase demand volatility as well as redemption risks.
According to the Fed, the Financial Markets Presidential Task Force, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have made recommendations to mitigate the risks associated with stablecoins.
US Treasury Secretary Janet Yellen recently advocated a federal regulatory framework for stablecoins following the TerraUST crash that wiped out billions of dollars from the crypto market.
Meanwhile, Federal Reserve Chairman Jerome Powell recently said the agency is looking into how a CBDC can improve the current payment system. The agency believes that the US CBDC can help maintain the international position of the dollar.
Credit : cryptoslate.com