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FSOC warns stablecoins, especially Tether, could cause financial problems without better risk management. The council calls for clear federal rules to reduce risks and improve transparency. FSOC urges Congress to act quickly to prevent issues from unregulated stablecoins. The U.S. Financial Services Oversight Council has issued a stark warning in its 2024 annual report. Which is emphasizing the potential risks that stablecoins pose to the financial system’s stability. FSOC Warns of Stablecoin Risks The FSOC’s report, published on December 6. Which highlighted that stablecoins remain “acutely vulnerable to runs” without proper risk management standards. One of the main concerns raised by the council is the market concentration of stablecoins. Tether (USDT), the largest stablecoin, accounts for around 66.3% of the total stablecoin market capitalization, valued at $205.48 billion. With such a significant market share. The failure of Tether could lead to substantial disruptions in both the cryptocurrency and traditional financial markets. Although the council did not directly name any of the companies. It pointed to the dominance of firms like Tether. And cautioned that their continued growth could have “knock-on effects” for the broader financial system. This is particularly concerning the Tether’s lack of third-party audits. Which has raised fears of potential liquidity crises similar to the collapse of FTX. FSOC Calls for Federal Stablecoin Regulation This also criticized the need for a comprehensive federal regulatory framework for stablecoins, with many issuers operating outside or in noncompliance with federal regulations. While some states have put in place supervisory measures, these are seen as insufficient to ensure effective market discipline and investor protection. The council warned that the lack of transparency regarding reserve management. And the insufficient verifiability of holdings increase the risk of fraud and manipulation within the sector. Stablecoins have faced significant scrutiny since the TerraUSD (UST) collapse in…

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Filed under: News - @ December 8, 2024 6:15 am