The U.S. Treasury Department’s Financial Stability Oversight Council (FSOC) says the role of stablecoins as a bridge between the digital asset market and the broader financial system deserves continued attention.
In his Annual report 2024the FSOC says that stablecoins – commodity or currency-linked cryptocurrencies – do not provide adequate protection against risk and failure.
“As the Council has stated in recent years, stablecoins continue to represent a potential risk to financial stability as they are acutely vulnerable to runs without appropriate risk management standards.”
The FSOC says the lack of safeguards becomes more concerning because more than half of the stablecoin sector’s total market value is controlled by a single company: USDT issuer Tether.
USDT’s total market capitalization is approximately $138 billion, which represents approximately 70% of the global stablecoin market, according to FSOC.
“Given that company’s market dominance, its failure, if it continues to grow, could disrupt the economy market for crypto assets and create domino effects for the traditional financial system.”
The council says many stablecoin issuers also operate outside prudential regulations framework, which increases the risk of fraud.
“While a few are subject to state-level oversight that requires regular reporting, many provide limited verifiable information about their assets and reserve management practices.”
Amid the continued growth of the crypto market, the FSOC urges lawmakers to enact laws to limit risks related to stablecoins.
“The Council recommends that Congress pass legislation creating a comprehensive federal government prudential framework for stablecoin issuers to address risk, payment system risks, market integrity and investor and consumer protection, including for entities providing services critical to the functioning of the stablecoin arrangement.
Read the full report here.
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Featured image: Shutterstock/Teo Tarras/Natalia Siiatovskaia