Tyler Gellasch, a former S.E.C. lawyer who now leads the Healthy Markets Association, questioned if Congress would take the necessary steps. “Given the incredible growth of the industry and its lobbying prowess, there’s no guarantees that new legislation will lead to more oversight and frankly, it’s likely to lead to less,” he said. “This report is unquestionably the starting gun for the crypto lobbying games.”
The rise of stablecoins is tied to the wider crypto boom this year.
Stablecoins are used to underpin a growing number of crypto trades and transactions in the $2.6 trillion crypto industry because most cryptocurrencies, including Bitcoin, are extremely volatile and impractical for those purposes. These include accounts where stablecoin holders can get loans or earn high-yield returns on deposits, similar to a bank savings account, but without the federal insurance that protects those bank accounts.
If Congress fails to act, the report suggests that a regulatory body created after the 2008 financial crisis, known as the Financial Stability Oversight Council, could step in and designate stablecoins as a potential systemic risk, immediately granting federal regulators new powers to demand changes in how stablecoins operate. The report does not recommend that as a first step, but it suggests that if Congress does not act quickly, regulators will consider turning to the oversight council.
“Stablecoins involve issues that go well beyond just stability, like financial inclusion and even web infrastructure, and as such, in an ideal world, would be subject to congressional action,” said Chris Brummer, a law professor at Georgetown University and a fintech expert who has served on the Commodity Futures Trading Commission’s panel on virtual currencies. “The question is whether or not Congress will be able to act quickly and effectively.”
Treasury officials repeatedly emphasized the magnitude of the risk if Congress does not act swiftly.
“Some stablecoin arrangements are already sizable, and many stablecoins are growing,” the report says, detailing the risks from a potential rush by consumers to cash out of a stablecoin. “A run occurring under strained market conditions may have the potential to amplify shock to the economy and the financial system.”
Some industry participants viewed the report as both a recognition of the potential that stablecoins have to transform the payments system and the legitimacy of cryptocurrencies overall.