The US Treasury Department says that stablecoins, cryptographically secured digital assets pegged to the price of traditional assets like the US dollar, could have a positive impact on the payments industry.
In a new press release and report on one emerging sector of the digital economy, the Treasury says “stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options.”
But the agency is also laying out what it views as the potential risks inherent in stablecoins and calling on the need for responsible regulation.
The report from the President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) outlines concerns about stablecoins and the digital asset space at large.
The regulators argue that stablecoins pose “illicit finance concerns and risks to financial integrity.” They say the sector presents risks involving compliance with anti-money laundering (AML) regulations and policies designed to counter the financing of terrorism (CFT).
“To prevent misuse of stablecoins and other digital assets by illicit actors, Treasury will continue leading efforts at the Financial Action Task Force (FATF) to encourage countries to implement international AML/CFT standards and pursue additional resources to support supervision of domestic AML/CFT regulations.”
The report also notes that stablecoins could be at risk of runs if issuers stop honoring investor requests to redeem them, or if investors simply lose confidence in an issuer’s ability to honor redemption requests. Runs on stablecoin issuers could cause harm to the broader financial system, the regulators argue.
Additionally, the report makes the case that digital assets and decentralized finance (DeFi) present market integrity and investor protection risks, including front-running, insider trading, market manipulation and fraud.
More regulations and disclosures are recommended to combat these risks.
“As markets for digital assets and DeFi grow, it is essential to address the significant investor and market risks that could threaten end users and other participants in stablecoin arrangements and secondary market activity.
This may be accomplished through promotion of investor and market protection measures, such as requiring clear and complete disclosures and protecting against fraud, manipulation, and other risks.”
The regulators also call on Congress to pass legislation to provide oversight for the stablecoin space.
“To address prudential risks associated with the use of stablecoins as a means of payment, the agencies recommend that Congress act promptly to ensure that payment stablecoins are subject to appropriate federal prudential oversight on a consistent and comprehensive basis.”
The stablecoin market didn’t appear to be impacted at all price-wise by the report, which you can read a full version of here.
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