US Financial Stability Group sees stablecoin and DeFi as risky
Stablecoin are being scrutinized in the United States by the Congress. Following the scenario, the national Financial Stability Oversight Council (FSOC) has been found waiting for the government to take action on digital assets. The FSOC highlighted the growing risks associated with digital assets in its annual stability report. Moreover, the agency wants the government to take actions against fiat-pegged crypto assets. Indeed, it punted on whether the group would take any specific actions while concerning stable crypto tokens and the broader crypto ecosystem.
Stablecoin is potentially subject to failure
According to the FSOC, the reserves of stablecoin may not be subject to rigorous audits. Hence the quality and quantity of collateral may not correspond to the issuer’s claim. Ultimately, stable cryptos that maintain their value via algorithmic mechanism are potentially subject to failure due to market pressures, operational failures and other associated risks.
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Furthermore, the council will also be prepared to consider steps that are available to address crypto risks outlined in the President’s Working Group on Financial Markets. It is also noteworthy that beyond stablecoins Friday’s report also highlighted the development and potential risks from DeFi industry and other cryptocurrency activities like lending and trading.
FSOC appears to be unconvinced
Digital currency ecosystem has seen watershed moments since the beginning of this year. Following the developments, FSOC shows concern that such a highly volatile asset class could become a serious investment class for traditional types. The regulator noted that the industry has seen its unusual expected volatility along with a number of hacks, rug pulls, and other scams. Still the speculators are propelling the majority of trades.
Stablecoins could become a payment tool
Although currently such stablecoin is predominantly being used in trading lending and borrowing, they could one day become a payments tool. According to the report by the stability agency, well designed and appropriately regulated stable crypto assets could bring faster and better payments infrastructure than our current channels support.
Furthermore, such regulated assets would bring the transition to broader use of such currency as a means of payment, that is occurring rapidly due to network effect or relationships among existing users based platforms.
However, the section also noted that the potential regulatory concerns around the stable assets include the need for user confidence in the tool as a means of payments. Indeed, financial innovation could offer considerable benefits to consumers and providers of financial services by reducing the cost of certain financial services, increasing the convenience of payments and potentially boosting the availability of credit.
