As U.S. lawmakers push for emergency regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve have warned that the risk of a stablecoin run threatens the country’s financial stability. Treasury Secretary Janet Yellen cited the terrausd (UST) fiasco as an example of why a comprehensive regulatory framework is urgently needed.
Treasury Secretary Janet Yellen to testify before Senate committee
Stablecoins have become a hot topic in Washington. U.S. lawmakers have called for urgent regulation of stablecoins following Monday’s terrausd (UST) fiasco.
On Tuesday, U.S. Treasury Secretary Janet Yellen cited the UST as an example of a “stablecoin run” when she testified before the Financial Stability Oversight Committee (FSOC) Senate Committee on Banking, Housing and Urban Affairs. annual report.
Sen. Pat Toomey (R-Pa.) asked Yellen to confirm her views on the need to regulate stablecoins. “I wanted to ask if you could formally confirm here that you still think it’s still important, even urgent, for Congress to pass legislation governing payments in stablecoins,” he said.
Yes, I am happy to confirm, Senator Toomey.
She continued: “The report released by the President’s Task Force argues that the current legal and regulatory framework does not provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment product, and urges Congress to enact legislation to ensure stablecoins such as The arrangement has a federal prudential framework.”
The Treasury secretary detailed: “I would urge bipartisan action to create such a framework. We look forward to working with you.” She added:
The Wall Street Journal reported this morning that a stablecoin called terrausd [UST] After one run, the value dropped.
“I think it just goes to show that this is a fast-growing product, there are financial stability risks, and we need a framework in place,” Yellen stressed.
Toomey responded quickly: “It’s important to note that I think what you’re referring to as a stablecoin is an algorithmic stablecoin. So, by definition, that means it doesn’t have cash or securities as — if you can call it — Support for “more traditional stablecoins.”
Stablecoin terrausd (UST) lost its parity Against the greenback, the greenback fell to an all-time low of $0.66 per unit on Monday.
Financial Stability Oversight Board annual report warns of stablecoin operations
this FSOC Annual Report It was also noted that stablecoins may be vulnerable to risks. The report states that “the potential for increased use of stablecoins as a means of payment raises a number of prudential concerns”:
If stablecoin issuers do not honor requests to redeem stablecoins, or if users lose confidence in the stablecoin issuer’s ability to honor such requests, a run may occur, which could cause damage to users and the wider financial system .
Federal Reserve Report on Financial Stability Says Stablecoins Are Vulnerable to Runs
The FSOC’s views on stablecoins are in line with the Fed.The Board of Governors of the Federal Reserve System publishes its semi-annual report Financial Stability Report Monday also warned about the operational risks of stablecoins.
One of the risks discussed in the report is “funding risk,” which “exposed the financial system to the possibility that investors would ‘flight’ by withdrawing funds from a particular institution or sector,” the report elaborated, detailing:
Certain types of money market funds (MMFs) and stablecoins are still prone to runs.
Furthermore, “the stablecoin industry continues to grow rapidly and still faces liquidity risks,” the report noted.
What do you think of Treasury Secretary Yellen’s comments and the Fed and Financial Stability Oversight Board’s warnings about stablecoins? Let us know in the comments section below.
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