The new rules will create winners and losers, with some industry players better positioned to embrace them than others, who may have to change their business models to come into line.
New York State regulators in 2019 opened a fraud investigation into Tether, an inquiry that was settled this year with an agreement prohibiting the company from doing business with customers in New York and ordering it to regularly disclose what types of reserve assets back up its stablecoin.Ĭircle has already announced plans to voluntarily shift its reserves to more liquid assets as of this month. The world’s most popular stablecoin is USDT, issued by Hong Kong-based Tether it currently represents more than half the global stablecoin supply.
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There have already been some moves to crack down on the sector. The company blamed “resource exhaustion in the network” that prevented or slowed customers from buying or selling during the crash. The Solana blockchain, a relatively new network that said it has seen an “ exploding” number of stablecoin transactions, suffered a 17-hour outage on Sept. Treasury Department officials also want assurances that the stablecoin firms have the technical capacity to handle big surges in transactions, so that they do not set off a chain reaction of trouble if large numbers of customers try to cash out their holdings. That “commercial paper” is entwined with other key parts of the financial system. In addition to cash and short-term Treasury bonds - which are considered safe and easy to redeem - issuers of stablecoins USDT and USDC, for example, also have at least until recently held reserve assets like unsecured debt in corporations, which is much riskier and harder to quickly turn into cash, especially in times of financial turmoil. Regulators are worried about whether stablecoin firms hold enough liquid assets to back up the value of the currency they issue.
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They have lined up in recent weeks in a series of virtual and in-person meetings with banking and financial regulators, seeking to shape the new rules while largely acknowledging that some form of federal oversight is now inevitable. The regulatory push has generated a wave of lobbying by cryptocurrency executives. Stablecoins now underpin a growing share of cryptocurrency transactions globally, at a time when the total value of outstanding crypto tokens like Bitcoin is about $2 trillion - roughly the same value as that of all United States dollars in circulation.
Largely known as a vehicle for speculation, cryptocurrency is increasingly starting to transform banking and finance and is stirring discussions over whether governments should issue digital currencies of their own to augment or eventually replace their traditional currencies. “It feels like we may be on the cusp of another with cryptocurrencies.” “I have seen one fool’s gold rush from up close in the lead-up to the 2008 financial crisis,” Michael Hsu, the acting comptroller of the currency said, in remarks on Tuesday. The push by the Biden administration to exert some control over stablecoins is the leading edge of what is likely to be a far more expansive debate over the government’s role in regulating cryptocurrencies - a topic generating increased concern in Washington.
regulatory framework in place,” Nellie Liang, an under secretary of the Treasury who is helping lead the effort, said in a statement. “It is important for the agencies to act quickly to ensure there is an appropriate U.S. Just this year, dollar-tied stablecoins such as Tether token, USD Coin and Pax Dollar have jumped from $30 billion in circulation in January to about $125 billion as of mid-September. The use of stablecoins is surging rapidly, and regulators have grown increasingly concerned that they are not in fact stable, and could lead to a digital-era bank run. The idea is to make it easier for people holding cryptocurrency - which is notorious for its frequent price swings - to carry out transactions like purchasing goods and services, or to earn interest on their crypto holdings. The value of a stablecoin is ostensibly pegged one-to-one to the United States dollar, gold or some other stable asset.
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