The US Financial Stability Oversight Council (FSOC) has issued a warning about the stability risks posed by stablecoins, calling for urgent legislative action to enhance oversight. In its 2024 annual report, the FSOC raised concerns about the inadequate oversight and significant market concentration of stablecoin issuers.
Stablecoins, marketed as reliable digital alternatives to traditional currencies, are vulnerable to runs without stringent risk management standards. The opacity surrounding issuers’ reserves and operational practices undermines market discipline and increases the potential for fraud.
The FSOC recommends establishing a comprehensive federal prudential framework for stablecoin issuers, requiring robust reserve management, minimum capital and liquidity standards, and regular reporting obligations. This framework would address risks related to payment system disruptions and enhance investor and consumer protections.
The council also highlighted the expanding integration of crypto-assets with traditional financial systems as a key concern. The market value of spot exchange-traded products (ETPs) has surged to nearly $80 billion in 2024, despite the sector’s high-risk nature.
To counter these challenges, the FSOC recommends granting federal financial regulators explicit powers to oversee crypto markets that fall outside securities regulation. A balanced regulatory approach is needed to support innovation while safeguarding financial markets.
Source: https://cryptoslate.com/fsoc-warns-stablecoins-pose-stability-risks-calls-for-legislative-action-to-enhance-oversight