US Fed warned about the risks associated with stablecoins

The agency noted that the risk of stablecoins is the possible problems with converting them into fiat currency

10.05.2022 - 13:15

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What’s new? The US Federal Reserve System (Fed) has drawn attention to the risk of a fall in the stablecoin market. The Fed has stressed that stablecoins, along with some money market funds (MMFs) and bonds, are risk areas in the current financial system, particularly in the field of funding. This is reported in the regulator’s report.

The Fed’s report

What else does the report say? The risk of stablecoins is the possible problems with converting them into fiat currency. Stablecoins are backed by assets that can lose value or become illiquid in times of stress, creating redemption risks. A lack of transparency can increase the vulnerability and liquidity-related risks of reserve assets.

What events happened before? In November 2021, the US Treasury Department published a report on the risks associated with stablecoins. The document is based on the discussions of the US President’s Working Group on Financial Markets (PWG). The report’s authors believe that stablecoins threaten investors and the integrity of the market. According to the group, the reserves that support them are not sufficiently transparent.

In March 2022, Fed Chairman Jerome Powell said that cryptocurrencies and stablecoins pose a threat to the US financial system. He believes that digital assets require “changes to existing laws and regulation or even entirely new rules and frameworks.”

On April 4, 2022, the head of the US Securities and Exchange Commission (SEC) Gary Gensler stated that oversight of cryptocurrency exchanges and issuers of stablecoins should be strengthened. In his view, stricter oversight of these areas would protect investors.

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