The Financial Services Oversight Council (FSOC), a government organization established by the Dodd-Frank Wall Street Reform and Consumer Protection Act, has urged Congress to pass legislation that establishes a comprehensive federal framework for regulating stablecoin issuers. The FSOC’s report highlights the growing threat of stablecoins to the US financial system due to their potential for runs without adequate risk management standards.
Tether, currently dominating the stablecoin market with around 70% of the $204 billion sector, has faced criticism for not providing audits to verify its reserves. Critics warn that if Tether’s reserves are insufficient, it could collapse, causing a major disruption in the crypto market.
The FSOC’s concerns echo those raised after the collapse of TerraUSD (UST) in May 2022, which wiped out over $40 billion in value from the crypto market. Despite these risks, stablecoins remain widely used for trading and liquidity.
The FSOC recommends passing stablecoin regulations to alleviate risks, urging Congress to develop a comprehensive federal prudential framework for stablecoin issuers. The organization suggests providing federal financial regulators with explicit rulemaking authority over the crypto-asset spot market.
Source: https://crypto.news/stablecoins-on-shaky-ground-us-council-calls-on-congress-to-enact-crypto-oversight