cryptojournalist
What’s the Problem with Stablecoins?
The U.S. Financial Services Oversight Council (FSOC) has raised concerns that stablecoins could put the financial system at risk. In their report from December 6, they pointed out that stablecoins are highly vulnerable to “runs” (where people rush to withdraw funds all at once) if they don’t have better risk management in place.
A Few Big Players Control the Market
The FSOC also highlighted that the stablecoin market is dominated by a small number of companies. For example, Tether (USDT) controls around 66% of the market, which is a huge amount. If something were to happen to one of these major players, it could cause problems not only in the crypto world but also in traditional finance.
Lack of Regulation and Transparency
One of the biggest issues with stablecoins is the lack of proper regulations. Many stablecoin issuers don’t follow clear federal rules, and some provide very little information about their reserves or how they manage their funds. This creates a breeding ground for fraud and undermines trust in the system. The FSOC pointed to the 2022 collapse of TerraUSD (UST) as an example of what can happen when things go wrong.
FSOC Pushes for Action from Congress
The FSOC is urging Congress to step in and create a solid regulatory framework for stablecoin issuers. This would help manage risks like fraud, payment system issues, and ensure consumer protection. If Congress doesn’t take action, the FSOC has said they might take matters into their own hands.
What About Europe’s Regulations?
Tether’s CEO, Paolo Ardoino, has expressed concern over upcoming European regulations (MiCA). These rules would require stablecoin issuers to keep 60% of their reserves in European banks, which he believes could create additional risks for stablecoins. The problem is that banks tend to lend out most of their reserves, which could cause issues if stablecoins run into trouble.
