Why are policymakers worried about stablecoins? Stablecoins compete with banks and other regulated financial institutions, so regulators believe they should follow similar rules to promote an equal playing field and protect investors.
The collapse of the stablecoin TerraUSD USTUSD, +6.39% has made waves in Washington, attracting the attention of the nation’s top policymakers and adding urgency to an ongoing debate in Congress about cryptocurrency regulation.
The drama was enough for Treasury Secretary Janet Yellen to urge Congress to quickly pass a new regulatory framework and for Pennsylvania Sen. Pat Toomey, the top Republican on the Senate Banking Committee, to hold a press conference touting his legislation in this area.Stablecoins compete with banks and other regulated financial institutions, so regulators believe they should follow similar rules to promote an equal playing field, protect investors and guard against financial contagion.
Meanwhile, as Tether and other stablecoins grow, they become more integrated into the broader financial system through reserve-fund purchases of commercial and government debt. Paul Kupiec, an economist at the American Enterprise Institute, favors this approach, because he sees the potential for stablecoins to promote innovation in the payments industry.
Today the company issues regular statements on the composition of its reserves, attested to by the independent auditor MHA Cayman, though these disclosures fall well short of what’s required of federally regulated money market funds or banks.
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