Stablecoins Come Under Scrutiny As Regulators Rev Up Crypto Clampdown Efforts
US regulators are paying close attention to fiat-backed digital assets, popularly known as stablecoins, per reports from Bloomberg.
Tether Under Scrutiny
The crypto market has been largely left to fend for itself in the last twelve years but it seems federal regulators are now ready to step in.
According to a Bloomberg report citing anonymous sources, Treasury officials are now turning their attention to stablecoins with genuine interests in Tether’s USDT. However, this hinges on a policy recommendation set to come out in the coming months.
This is expected to encompass urgent risks like the financial implications of these privately run digital tokens and the feasibility of users of these tokens converting their assets back to fiat. The report will also take into cognizance the threats a “fire-sale run” on the crypto market could have on investor’s financial wellbeing.
The crypto market has been the subject of several debates with critics and government officials calling for more oversights of the burgeoning industry.
For now, fragmented efforts by several US states are the only working framework that governs the nascent industry and blockchain guru turned Securities and Exchange Commission Chair Gary Gensler has hammered on the need to regulate the blockchain space.
According to the former blockchain instructor at MIT, the crypto space represents the Wild West of Finance and is “rife with fraud and abuse” with the obvious lack of basic consumer protection.
Gensler has not been alone in calling out the virtual industry. Treasury Secretary Janet Yellen is also a popular critic of the space with a particular interest in Bitcoin. Yellen has countless times explained that virtual currencies pose serious national and financial risks given their role in money laundering and terrorist financing.
Tether First Among Many On Regulators’ Radar
Tether has not endeared itself to federal agencies and has been a major antagonist in the long-drawn-out war with federal regulators. The company was a principal subject in a legal lawsuit that featured it with crypto exchange BitFinex against the New York Attorney General (NYAG) office. The case dragged on for two years with Tether having to settle with $18 million.
Tether also agreed to periodically publish its records and has been forthwith on its promise. However, the company’s backing for the USDT token has been anything but impressive.
In a recent release, the company said it had $62.6 billion in assets – 49% of which is commercial paper while cash and bank deposits made up a meager 10%.
The underlying risk has drawn regulator’s interests with calls now echoing in Washington that the entire stablecoin industry should come under strict regulatory oversight. This has seen Facebook’s stablecoin project Diem suffer, with officials not keen on handing out operational approval. According to the Bloomberg report, Treasury officials are worried about how to manage the situation.
However, Tether’s troubles have benefited rivals USDC, operated by the Circle Consortium, and BUSD, owned by the world’s largest crypto exchange BUSD. So far, both have seized a significant share of the stablecoin market with increases of 23.9% and 10.4%, respectively.