Fed Once Again Warns About Stablecoins

Stablecoins can pose risks to the financial system due to their lack of transparency and often lack “safe” reserves, the US Federal Reserve (Fed) once again reiterated its position.

In its monetary policy report submitted to Congress yesterday (June 17), the US central bank stated that “the collapse in the value of certain stablecoins and recent strains experienced in markets for other digital assets demonstrate the fragility of such structures.“

“Stablecoins that are not backed by safe and sufficiently liquid assets and are not subject to appropriate regulatory standards create risks to investors and potentially to the financial system.”

While the Fed report doesn’t mention Terra by name, it does seem to refer to the protocol as a prime example of the kind of damage stablecoins can do in the market.

The report also criticized the lack of transparency among stablecoin issuers regarding risk and reserve liquidity. It also warns that stablecoins are commonly used as collateral for leveraged trading, which could potentially “amplify market volatility” and increase the risk posed by issuers not repurchasing.

US Treasury Secretary Janet Yellen is among a number of officials who have echoed the Fed’s position in recent weeks and made it clear that they want to establish a regulatory framework for stablecoins even before Terra collapses.

A bipartisan cryptocurrency bill introduced in the Senate this month also called for “a robust, consistent regulatory framework for stablecoins” and, if passed, would require institutions to Centralize stablecoin issuers to guarantee 100% reserve for their products.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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