Regulators demand bank-like oversight for stablecoin issuers

A report from the President’s Working Group on Financial Markets this week highlighted regulators’ desire for a closer watch on stablecoin issuers, particularly given concerns about how secure they are.

Why should we care?
Stablecoins are digital currencies tied to a fiat currency like the U.S. dollar, and have been touted as solutions to a variety of frictions around payments, including costs and settlement times. But regulators also have concerns with them. “The primary risk of stablecoins is that they aren’t fully backed by the reserve currencies they say they are,” one industry practitioner said. “In an ideal situation, the issuer of the stablecoin has enough reserves of the currencies (in cash or other highly liquid, safe investments) to fully support the stablecoin. Any less than 100 percent and risk is introduced.” In a statement accompanying the report from the President’s Working Group on Financial Markets, Treasury Secretary Janet Yellen said “the absence of appropriate oversight presents risks to users and the broader system.” Meanwhile, there are indications that a crackdown on the $131B stablecoin market from the Securities and Exchange Commission is on the horizon, owing to risks they could pose to the financial system.