US Financial Stability Oversight Council identifies stablecoins and cryptocurrencies as threats

“The board recommends that state and federal regulators review existing regulations and tools that can be applied to digital assets,” said the FSOC.

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In an annual report released on Friday, the US Financial Stability Oversight Council (FSOC) raised concerns about the adoption of stablecoins and other digital assets.

With regard to stablecoins, the FSOC says consumer confidence can be undermined by factors such as illiquidity, a lack of adequate security precautions, unclear usage rights and cyberattacks. Running out of stablecoins during stressful market conditions could potentially shock the economy and financial system, the report said.

The report also warns of developments in the area of ​​decentralized financing, or DeFi for short, where the use of high leverage can trigger a sell-off if the price of the underlying asset falls. This will result in a margin call cycle and the price will continue to fall. In addition, the report also noted that “Users of these services are at risk of loss due to fluctuations in market value, operational issues, and cybersecurity threats, among other risks.” In the recommendations of the report, the FSOC calls for a joint effort between federal and state authorities to introduce stablecoins and digital currencies.

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Despite concerns about the highly unregulated nature of the cryptocurrency industry, the report highlighted its innovative potential:

The rise of digital assets and the associated use of distributed ledger technology can offer an opportunity to promote innovation and further modernize the financial infrastructure. Regulatory attention and coordination are vital in the rapidly evolving digital asset market.