Why regulators are so concerned about ‘stablecoins’: crypto wrap

Sunbd Desk || Published: 2021-09-11 15:57:03 || Updated: 2021-09-11 15:57:03

The US Treasury Department met with industry figures this week to discuss the risks and benefits of stabelcoins, cryptocurrencies that are pegged to traditional currencies, Reuters reported on Friday, citing three unnamed sources.

But why are they so interested in them in the first place? With a market cap of about $125 billion, they are a tiny slither of the approximately $103 trillion of assets under management, although the wider crypto market surpassed a record $2 trillion in April.

At this stage, they are just gathering information. However, Janet Yellen, US Treasury Secretary, said in July that the government must move quickly to establish a regulatory framework for stablecoins.

One of the imminent concerns regulators have about stablecoins is that they are actually used as money. While bitcoin et al have proven great investments, not many people buy things with them, making them potentially a smaller part of the fabric of the financial system than, say, Tether, Paxos Standard or TrueUSD.

With those stablecoins and many others, you don’t have to worry about swapping them for goods for fear of missing out on a surge in the currency’s value.

Policymakers are concerned that the rise in privately-operated currencies could undermine their control of the financial and monetary systems, increase systemic risks, promote financial crime, and hurt investors.

Among the questions Treasury officials asked industry participants this week was how they could mitigate the risks of too many people trying to cash in their stablecoins at the same time. That could make it hard for the managers of the coins to maintain their peg to the dollar, or whatever currency they are linked to, and risk leaving investors nursing a loss.

Treasury officials also asked whether major stablecoins should be backed by traditional assets. Many crypto enthusiasts have been ruing the end of the gold standard for some time, so maybe this is their opportunity to bring it back.

The Treasury is expected to release a number of reports detailing its thinking in the coming months, but it is unlikely that the industry will get away with remain the unregulated domain it is today.ArabNews

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