Key points to remember:
- President’s Task Force (PWG) released report assessing stablecoin risks and called on Congress to legislate on booming stablecoin industry
- The PWG outlined the key areas that require additional rules and potential regulatory solutions proposed
- Stablecoin issuers recognize need for increased regulatory oversight and welcome greater regulatory clarity
After an extended wait, the US Treasury Department finally released its report on the risks associated with stablecoins on November 1. The report, which was prepared by the President’s Financial Markets Task Force (PWG), includes several proposals that would introduce tough measures. on stablecoin issuers and apply additional rules on stablecoin reserves.
Regulators want to impose limits on stablecoin issuance and introduce rules for reserves
Stablecoins are digital currencies that are pegged to the value of a certain fiat currency or to the basket of digital assets from which they derive their value. Essentially, stablecoins keep prices constant regardless of market circumstances. The most popular use case for stablecoins is the ability for cryptocurrency investors to easily integrate and withdraw funds from cryptocurrency exchanges and transfer funds between wallets and services without losing. of value due to the volatility of other digital assets.
With the rise of their popularity, regulators have become increasingly adamant about how the industry should be regulated. Most notably, Treasury Secretary Janet Yellen called for a new “regulatory framework” that would legislate the sector in July.
The PWG has identified several key issues that they believe should be addressed through new laws. The PWG emphasized the transparency of stablecoin reserves and expressed concern about the process of issuing new digital stablecoins.
According to the PWG report, “the current stable coin arrangements raise significant concerns from the point of view of investor protection and market integrity.” The team working on the new analysis of the stablecoin sector offered their potential solutions to protect users:
“To address the risks to stablecoin users and to guard against stablecoin races, legislation should require stablecoin issuers to be insured depositories, which are subject to appropriate oversight and regulation, at the level depository institution and holding company. The legislation would prohibit other entities from issuing stable payment coins. “
The burden of regulation would fall on various regulators, including the Securities and Exchange Commission (SEC), the Federal Reserve, and the Commodity Futures Trading Commission (CFTC).
The report underscored the need for Congress to act quickly to enact new laws and regulations that would limit who can issue stablecoins and introduce rules on how to manage stablecoin reserves. According to The Block, stablecoins issuers recognize that stablecoins “are going to be heavily regulated,” given the recent increase in popularity. In addition, regulators “want more regulatory clarity” in the future.
David is a crypto enthusiast and a personal finance expert. He has created numerous publications for different platforms. He loves to explore new things, and that’s how he discovered blockchain in the first place.