Stablecoins, digital currencies pegged to national currencies like the U.S. dollar, are increasingly seen as a potential risk not just to crypto markets, but to the capital markets as well.
is scheduled Monday to hold a meeting of the President’s Working Group on Financial Markets to discuss stablecoins, the Treasury Department said Friday. The group includes the heads of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Ms. Yellen said in a statement.
Stablecoins are a key source of liquidity for cryptocurrency exchanges, their largest users, which need to process trades 24 hours a day. In the derivatives and decentralized finance markets, stablecoins are used by traders and speculators as collateral, and many contracts pay out in stablecoins.
Stablecoins have exploded over the past year as cryptocurrency trading has taken off. The value of the three largest stablecoins—tether, USD Coin and Binance USD—is about $100 billion, up from about $11 billion a year ago.
chief executive of the USD Coin issuer, Circle Internet Financial Inc., said the meeting of the president’s working group is a good thing for stablecoins and that he supports developing clear standards. “I think it’s good news,” he said.
Tether Ltd., the issuer of the tether stablecoin, said it looked forward to working with officials to support transparency and compliance. Binance Holdings Ltd., issuer of Binance USD, said it sees the meeting as a positive move. Having regulators involved will bring more legitimacy and clarity to stablecoins, Binance Chief Compliance Officer Samuel Lim said.
Stablecoins and the companies that issue them have been criticized as not being trustworthy.
“There are many reasons to think that stablecoins—at least, many of the stablecoins—are not actually particularly stable,” Boston Federal Reserve President
said in a June speech.
While the startups issuing these stablecoins including Circle and Tether are responsible for assets that make them sizable players in the traditional capital markets, there are no clear rules about how the assets should be regulated to ensure stability.
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In December, the president’s working group released a statement on the regulatory issues concerning stablecoins. Among other things, it suggested that best practices would include a 1:1 reserve ratio and said issuers should hold “high-quality, U.S.-dollar denominated assets” and hold them at U.S.-regulated entities.
Stablecoins operate on the assumption that their reserves are liquid and easily redeemable. Ostensibly, a stablecoin should at all times be redeemable for national currencies, and the amount held in reserve should equal the amount in…