Secretary Yellen Calls for Quick Action on Stablecoin’s Regulatory Framework
Growth of coins like USDT are beseeching the security of regulators and the US regulators are brimming to corral the growing asset base.
Recognizing the Need for Stablecoin
US Treasury Secretary Janet Yellen is pushing regulators to expedite efforts into building a framework of compliance for stablecoins. Yellen stressed the issue at a meeting on July 19 as a part of The Presidential Working Group on Financial Markets (PWF).
The PWF consists of the Treasury, the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. Monday’s meeting also included representatives from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Secretary Yellen explained in the official press release from July 16.
She continued on to mention that “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”
Stablecoins are cryptocurrencies whose market value is pegged to another asset that has a stable value. This solves one of the major arguments against cryptocurrency’s utility because of price volatility. If the stablecoin is pegged to the dollar, it will track the value of the underlying asset.
Digital Asset’s Rapid Growth
Yellen hopes the meeting can address the growing concerns resulting from the exponential growth in the adoption of cryptocurrencies. Stablecoins have been playing an important role in the crypto industry and are fast becoming an integral part of crypto investing.
The supply of stablecoins has surpassed $110 billion. Tether (USDT) leads the way with a market cap of over $64 Million. Stablecoins are often paired with other crypto assets to weather extreme volatilities. They can improve efficiencies, increase competition, lower costs and foster broader financial inclusion.
With Growth Comes Scrutiny
Stablecoins are now more prominently utilized than before and with that increased utility, the risks and scrutiny to the financial markets have also increased. While the regulatory vacuum within the crypto space is expected, regulators worldwide are taking steps to fill the void.
Different authorities are tasked with the regulatory role depending on the classification of the asset. In a statement released by PWF in December 2020, the role and contribution of stablecoins are acknowledged.
One of the major stablecoins, Tether (USDT) is mired with controversies. In February this year, the Attorney General of New York said that Tether’s claim that the crypto asset is backed by the U.S. Dollar is a lie. In May 2021, Tether published a report showing that only a small fraction of Tether was backed by cash, with over 65% backed by commercial paper.
Innovation in a Safe Space
Stablecoins are one of the most important tools in the financial market today. Visa is using USDC to settle transactions on its payment network. The market will continue to grow and stablecoin is an immediate solution to price volatility for crypto assets. It also provides liquidity to the crypto market. Therefore, Yellen’s call for a regulatory framework is timely. There must be certainty and accountability for all stakeholders.
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