US Lawmakers Push for Urgent Stablecoin Regulation — Fed Warns of Stablecoin Runs, Janet Yellen Cites UST Fiasco

US Lawmakers Push for Urgent Stable Coin Regulation – Fed Warns Against Stablecoin Operation, Janet Yellen Cites UST Fiasco – Bitcoin Regulatory News

As US lawmakers push for urgent regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve are warning of the dangers of stablecoin flows that threaten the country’s financial stability. Treasury Secretary Janet Yellen cited the Earth’s Earth failure as an example of why a comprehensive regulatory framework is urgently needed.

Treasury Secretary Janet Yellen Testifying Before a Senate Committee

Stablecoins have become a hot topic in Washington. Following the failure of Terrausd (UST) on Monday, US lawmakers called for urgent regulation of stablecoins.

On Tuesday, US Treasury Secretary Janet Yellen brought up UST as an example of “stablecoin operation” during her testimony before the Senate Committee on Banking, Housing, and Urban Affairs on the Financial Stability Oversight Board (FSOC) annual report.

Senator Pat Tomey (R-Pen) asked Yellen to confirm her view on the need for stablecoin regulation. “I would like to ask if you can confirm for the record here that it is still your opinion that it is important, I would argue even urgently, that Congress pass legislation governing the stable payment regulations,” he said.

Yellen replied:

Yes, I am happy to confirm that, Senator Tommy.

She continued, “The President’s Working Group released a report concluding that current legal and regulatory frameworks do not provide consistent and comprehensive risk standards for stablecoins as a new type of payment product, and urges Congress to enact legislation to ensure that stablecoins and these arrangements have a federal prudential framework.”

“I would urge bipartisan action to create such a framework. We look forward to working with you,” the Treasury Secretary explained. She added:

There was a report this morning in the Wall Street Journal that a stablecoin known as terrawsd [UST] It has run its course and its value has gone down.

“I think this simply shows that this is a fast-growing product and there are risks to financial stability and we need an appropriate framework,” Yellen stressed.

Tommy quickly replied, “It is important to note that the stablecoin you are referring to is, I believe, an algorithmic stablecoin. By definition, that means that it is not backed by cash or securities like — if you can call it — “more traditional stablecoins.”

The terrausd (UST) stablecoin lost its parity with the US dollar and fell to an all-time low of $0.66 per unit on Monday.

Financial Stability Oversight Board Annual Report Warns Against Running Stablecoin

The FSOC annual report also states that stablecoins may be subject to risks. Noting that “the potential for increased use of stablecoins as a means of payment raises a range of prudential concerns,” the report states:

If a stablecoin issuer does not honor a demand to redeem a stablecoin, or if users lose confidence in a stablecoin issuer’s ability to satisfy such a request, the operation may occur in an arrangement that could harm users and the broader financial system.

Fed’s Financial Stability Report Says Stable Coins Are Vulnerable to Running

The Federal Reserve shares the FSOC’s view on stablecoins. The Federal Reserve Board of Governors similarly released its semi-annual Financial Stability Report on Monday, warning of the risks of operating stablecoins.

Among the risks discussed in the report are “Finance Risks,” which “expose the financial system to the possibility of ‘running’ investors by withdrawing their money from a particular institution or sector,” and the report details:

Some types of money market funds (MMFs) and stablecoins remain subject to operation.

In addition, “the stablecoin segment continues to grow rapidly and remains exposed to liquidity risks,” the report notes.

Tags in this story

Federal Reserve, Financial Stability, Janet Yellen, Pat toomey, Stablecoin, Stable coin regulation, Stablecoin risk, Stable run, Stable coins, Stable coin, TerraUSD, terrausd unpeg, UST, ust fiasco, ust run, UST Stablecoin

What do you think of Treasury Secretary Yellen’s comments and the warnings issued by the Federal Reserve and the Financial Stability Oversight Board regarding stablecoins? Let us know in the comments section below.

Kevin Helms

Kevin, an Austrian economics student, found bitcoin in 2011 and has been a missionary ever since. His interests lie in Bitcoin security, open source systems, network effects, and the intersection between economics and cryptography.

photo credits: Shutterstock, Pixabay, Wiki Commons

Not giving an opinion: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services or companies. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the Company nor the author shall be liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Leave a Comment

Your email address will not be published.