A group of US regulators on Monday called on Congress to regulate issuers of “stablecoins” such as banks, arguing in a report that this emerging class of digital assets could pose risks to the broader financial system.
Stablecoins are a type of digital asset pegged to traditional currencies, with a market cap of approximately $127 billion. Here’s why regulators think they are a threat to the system:
run risk
Currently, stablecoins are mostly used to facilitate trading, lending or lending of other digital assets, usually on or through digital asset trading platforms.
But across the market, stablecoins have a number of policies governing such issues as disclosure, what assets are reserved for returning coins, redemption rights, and operational controls. This could increase the chances of losing investor confidence, especially in times of market stress, the report said.
Once a stablecoin starts trending, it could create a “self-consolidating cycle of redemptions and fire sales of reserve assets” that could spread to other parts of the system.
payment
The report states that stablecoins can be widely used by households and businesses to make payments.
Payment stablecoins face many of the same fundamental risks as traditional payment systems, which are highly regulated. These include: credit risk, liquidity risk, operational risk, risk arising from poor system governance, and settlement risk, regulators wrote on Monday.
“When not managed comprehensively, these risks can make payment systems less available and less reliable to users, and they can create financial shocks or serve as a channel through which Financial shocks spread,” it said.
systemic risk
While the value of stablecoins is still relatively small, the market’s incredible growth – 500% over the past 12 months – has stunned policymakers. The rapid rise of an individual stablecoin raises the possibility that it, or an associated wallet operator, could begin to take on a systemic risk when it goes into crisis like some of the country’s biggest banks.
economic power
A hugely popular stablecoin issuer or wallet provider could gain huge economic power, the report said. “A stablecoin that is widely adopted as a means of payment may present concerns about anti-competitive effects, for example, if users of that stablecoin decide to switch to other payment products or services. option, they face undue friction or cost.”
market abuse, manipulation
The report cautions that unregulated digital asset trading platforms present a range of risks, including: fraud, misuse of insider information, and fraudulent trading activities; market disruption due to operational failure; and money laundering and terrorist financing.
Disclaimer: This post has been self-published from the agency feed without modification and has not been reviewed by an editor
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