FSOC Warns Stablecoins Pose Financial Stability Risks, Urges Federal Regulation

The United States Financial Stability Oversight Council (FSOC) has raised serious concerns about stablecoins in its latest annual report, highlighting their potential to destabilize financial systems. The December 6 report stated the lack of robust risk management practices among stablecoin issuers, leaving the sector vulnerable to sudden market disruptions. “Stablecoins remain acutely vulnerable to runs in the absence of appropriate risk management standards,” the FSOC stated. The council also noted the market’s extreme concentration, with a single issuer dominating nearly 70% of the $205 billion stablecoin market capitalization. FSOC Calls for Comprehensive Regulation While the report refrained from naming the issuer, data from CoinMarketCap identifies Tether as the leader, holding 66.3% of the market share with a capitalization of $136.8 billion. The FSOC warned that the failure of such a dominant player could ripple through the crypto-asset market and impact traditional financial systems. The council likened this vulnerability to the TerraUSD (UST) collapse in May 2022, where a $2 billion de-pegging event caused the stablecoin’s value to plummet to $0.09, shaking investor confidence globally. The FSOC strongly urged Congress to enact federal legislation to establish a clear regulatory framework for stablecoin issuers. The council proposed guidelines to address risks such as payment system inefficiencies, market integrity, and fraud while ensuring consumer protection. “Although a few stablecoin issuers are subject to state-level oversight, many provide limited verifiable information about their reserve management practices,” the report highlighted, adding that the lack of transparency hampers effective market discipline and amplifies systemic risks. Looking Forward According to the FSOC, inaction could force the council to explore alternative measures to mitigate these risks. While welcoming Europe’s Markets in Crypto-Assets (MiCA) framework , which mandates stablecoin issuers to hold at least 60% of reserves in European banks, Tether CEO Paolo Ardoino expressed concerns about unintended consequences. Ardoino argued that the lending practices of European banks could introduce systemic risks for stablecoin issuers, potentially destabilizing the broader crypto market. As the stablecoin market grows, its inherent risks remain under scrutiny. The FSOC’s call for regulatory action underscores the urgency to balance innovation with financial stability. The post FSOC Warns Stablecoins Pose Financial Stability Risks, Urges Federal Regulation appeared first on TheCoinrise.com .

Source: The Coin Rise