WASHINGTON–Treasury Secretary Janet Yellen met with the White House yesterday to discuss stablecoins, the digital currencies that are pegged to national currencies like the U.S. dollar.
Some analysts have suggested stablecoins are potentially an increasing risk, not just to crypto markets but to the capital markets as well.
Yellen met with the President’s Working Group on Financial Markets to discuss issues around stablecoins. 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,” Yellen said in a statement.
The Wall Street Journal noted 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, the report added.
‘Exploded Over Past Year’
“Stablecoins have exploded over the past year as cryptocurrency trading has taken off,” the Journal reported. “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.
Jeremy Allaire, chief executive of the USD Coin issuer, Circle Internet Financial Inc., told the Journal he believes the meeting of the president’s working group is a good thing for stablecoins and that he supports developing clear standards.
Other companies in the field also told the Journal they believe having regulators involved will bring more legitimacy and clarity to stablecoins.
Earlier Statement Released
In December 2020, 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, according to the Journal.
The report noted 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 circulation: currently $64 billion for Tether, $26 billion for USD Coin and $11 billion for Binance USD, according to the Journal.