President’s Working Group on Financial Markets Releases Report and Recommendations on Stablecoins (2024)
Report Outlines Regulatory Framework for Stablecoins and Pathways to Address Risks
WASHINGTON—Today, the President’s Working Group on Financial Markets (PWG), joined by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), released a report on stablecoins. Stablecoins are a type of digital asset generally designed to maintain a stable value relative to the U.S. dollar. While today stablecoins are primarily used to facilitate trading of other digital assets, stablecoins could be more widely used in the future as a means of payment by households and businesses.
“Stablecoins that are well-designed and subject to appropriate oversighthave the potential to support beneficial payments options. But the absence of appropriate oversight presentsrisks to users and the broader system,” said Secretary of the Treasury Janet L. Yellen. “Currentoversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter. Treasury and the agencies involved in this report look forward to working with Members of Congress from both partieson this issue. While Congress considers action, regulators will continue to operate within their mandates to address the risks of these assets.”
The potential for the increased use of stablecoins as a means of payments raises a range of concerns, related to the potential for destabilizing runs, disruptions in the payment system, and concentration of economic power. The PWG report highlights gaps in the authority of regulators to reduce these risks.
To address the risks of payment stablecoins, the agencies recommend that Congress act promptly to enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal framework on a consistent and comprehensive basis. Such legislation would complement existing authorities with respect to market integrity, investor protection, and illicit finance, and would address key concerns:
To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions.
To address concerns about payment system risk, in addition to the requirements for stablecoin issuers, legislation should require custodial wallet providers to be subject to appropriate federal oversight. Congress should also provide the federal supervisor of a stablecoin issuer with the authority to require any entity that performs activities that are critical to the functioning of the stablecoin arrangement to meet appropriate risk-management standards.
To address additional concerns about systemic risk and concentration of economic power, legislation should require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities. Supervisors should have authority to implement standards to promote interoperability among stablecoins. In addition, Congress may wish to consider other standards for custodial wallet providers, such as limits on affiliation with commercial entities or on use of users’ transaction data.
In the immediate term, the agencies are committed to taking action to address risks falling within each agency’s jurisdiction, including efforts to ensure that stablecoins and related activities comply with existing legal obligations, as well as to continued coordination and collaboration on issues of common interest. While Congressional action is urgently needed to address the risks inherent in payment stablecoins, in the absence of such action, the agencies recommend that the Financial Stability Oversight Council consider steps available to it to address the risks outlined in this report.
As discussed in the report, in addition to the risks noted above, stablecoins may also raise investor protection, market integrity, and illicit finance concerns. To the extent activity related to digital assets falls under the jurisdiction of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), the SEC and CFTC have broad enforcement, rulemaking, and oversight authorities that may address certain of these concerns. To prevent misuse of stablecoins and other digital assets by illicit actors, Treasury will continue leading efforts at the Financial Action Task Force (FATF) to encourage countries to implement international AML/CFT standards and pursue additional resources to support supervision of domestic AML/CFT regulations.
While the scope of this report is limited to stablecoins, work on digital assets and other innovations related to cryptographic and distributed ledger technology is ongoing throughout the Administration. The Administration and the financial regulatory agencies will continue to collaborate closely on ways to foster responsible financial innovation, promote consistent regulatory approaches, and identify and address potential risks that arise from such innovation.
The PWG’s report can be viewed here.A factsheet on the PWG report can be viewed here. A copy of remarks prepared for delivery by Under Secretary Nellie Liang to a Stanford Graduate School of Business webinar on digital assets can be viewed here.
On November 1, 2021, the President's Working Group on Financial Markets (PWG)1, along with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and federal thrift institutions and the federally licensed branches ...
https://en.wikipedia.org › wiki › Office_of_the_Comptroller_...
Stablecoins pegged to the U.S. dollar are more “money-like” than other cryptocurrencies. They can be used to move value across borders without going through banks, and it is the banking system—and in particular the role of U.S. banks—that is key to the implementation and efficacy of sanctions.
To make that promise credible, stablecoin issuers hold a variety of reserve (collateral) assets, including fiat-denominated money market instruments, Treasuries, bank deposits and other cryptoassets (including other stablecoins).
Stablecoins are not immune to fluctuations in price, market capitalization and liquidity. A range of factors can cause them to depeg below or above their targeted value. Depegging can trigger individual investment and trading losses, while also pose systemic market risks related to solvency and liquidity.
The three most frequently cited use cases for stablecoins are as a medium of exchange, as a store of value, and as a trading asset. As a medium of exchange, stablecoins are used for payments. This can range from paying for coffee to cross-border remittances to settling large trades.
USDC brands itself to be the world's safest stablecoin. According to its issuer, Circle, each USDC token is backed 100% by highly liquid cash and cash-equivalent assets.
USDT, USDC, DAI, TUSD, and BUSD are key stablecoins today, each with unique features and stability mechanisms. These digital assets have a great potential for everyday transactional uses and micro-payments.
Tether Holdings Ltd., the operator of the largest stablecoin, said it posted net operating profit of $1.3 billion in the second quarter, as interest earned from its holdings of US Treasuries helped to offset a decline in the value of Bitcoin.
Tether, one of the most prominent names in the stablecoin market, has introduced a new player: Alloy. This gold-backed stablecoin promises to merge the enduring value of gold with the flexibility of digital currency. Let's delve into the intricacies of Alloy and understand its impact on the digital currency landscape.
Stablecoins have quite a few risks attached to them. While stablecoins in cold storage offer some advantages over dollars in traditional banks, they also come with some risks. Stablecoins are not FDIC-insured.
In the most high-profile example of what could go wrong, at least $40 billion worth of crypto was wiped out from the collapse of Terraform Lab's algorithmic stablecoin TerraUSD and its sister token Luna two years ago. In that case, the two coins were designed to rely on each other to maintain value.
Stablecoin legislation also threatens community banks by increasing their costs. Community banks could, of course, mitigate this migration of depositor assets to stablecoins by paying higher interest rates than those offered by stablecoin issuers, but that would squeeze community banks' already-tight margins.
How is stablecoin activity taxed? Despite the fact that stablecoins were designed to be used in everyday transactions, they are taxed the same as other digital assets. Like other cryptocurrencies, stablecoins are subject to capital gains and ordinary income tax.
Stablecoins generate interest and profit through various mechanisms, including stablecoin staking. You can stake your stablecoins, essentially locking them up for a specific period. In return, you receive rewards or interest.
Stablecoins attempt to peg their market value to some external reference, usually a fiat currency. They are more useful than volatile cryptocurrencies as a medium of exchange. Stablecoins may be pegged to a currency like the U.S. dollar, the price of a commodity such as gold, or use an algorithm to control supply.
Stablecoins are cryptocurrencies with a peg to other assets, such as fiat currency or commodities held in reserve. The intent behind them is to create a crypto asset with much lower price volatility, which makes them better for use in transactions.
No, bitcoin is not considered a stablecoin. A stablecoin is a type of cryptocurrency that is designed to maintain its value by pegging its price to a stable asset like a fiat currency (eg US dollar) or a commodity (eg gold).
Stablecoins are a type of cryptocurrency intended to maintain a steady value. However, not all stablecoins employ the same methods to achieve this objective. They can be broadly categorized into three main categories: fiat-backed, crypto-backed, and algorithmic stablecoins.
Introduction: My name is Tish Haag, I am a excited, delightful, curious, beautiful, agreeable, enchanting, fancy person who loves writing and wants to share my knowledge and understanding with you.
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