New stablecoin regulations are being proposed by a US Treasury official.

New stablecoin regulations are being proposed by a US Treasury official.

"If Congress does not pass legislation, the regulators will try to use whatever authority they have," said Nellie Liang of the US Treasury Department.

The United States Treasury made further hints at new laws for stablecoins on Dec. 17. Nellie Liang, the Under Secretary of the Treasury for Domestic Finance, fueled more stablecoin regulation speculation with comments on investors ‘potentially big risk’ when using stablecoins. 

Following on from the Financial Stability Oversight Council November 2021 report on stablecoins, the top official for financial oversight at the U.S Treasury stated that “If Congress does not enact legislation, the regulators will try to use what authority they have.”

In broad strokes, Treasury regulation of stablecoins is impossible without the support of a congressionally designated body. "They can do a little here and there," Liang said of regulators' powers, "but if these are foundational to crypto assets and they aren't stable, that could potentially be a big risk."

Stablecoins, the favoured option of leverage users and scalpers, make it easier for traders to enter and exit crypto assets. Tether (USDT), the largest stablecoin with a market valuation of nearly $75 billion, has been scrutinised multiple times.

Moore Cayman, a Cayman Islands-based accounting network, confirmed in March this year that Tether Holdings Limited's USDT stablecoin tokens are completely guaranteed by its reserves. However, officials continue to be concerned about its widespread usage.

Investor runs on stablecoin, according to regulators, may wreak havoc on the market, while the sheer enormity of a market collapse could disrupt regular financial markets. As a result, analysts like Mark Cuban predicted that 2021 will be the year of stablecoin legislation.

Liang's remarks suggest that when it comes to stablecoin regulation, Congress and the Treasury may be at odds. The Financial Stability Oversight Council noted in its November report that if Congress fails to adopt legislation, it is prepared to take steps on its own to handle stablecoins.

Her remarks are similar to those made by Federal Reserve Chairman Jerome Powell. He noted at the Federal Market Open Committee (FOMC) meeting on Wednesday that "If properly regulated, stablecoins can be a valuable, efficient, and consumer-friendly part of the financial system. And they aren't right now."

 

Congress, however, remains divided. Senator Elizabeth Warren of Massachusetts has a hard-nosed approach; “Stablecoins pose risks to consumers & to our economy. They’re propping up one of the shadiest parts of the crypto world, DeFi, where consumers are least protected from getting scammed. Our regulators need to get serious about clamping down before it is too late.”

In contrast, Senator Pat Toomey for Pennsylvania welcomes stablecoins as an “exciting new technology that creates opportunities for faster payments, expanded access to the payment system, programmability, and more.”

Curiously, proponents of Bitcoin (BTC) and cryptocurrencies as a whole would argue that any regulation of the stablecoin space is a case of shutting the stable door after the horse has bolted. Dylan LeClair, a prominent Bitcoin analyst, claims that stablecoins are “preferred collateral for bulls,” which is “good to see.”

Furthermore, Alex Gladstein, Human Rights Foundation chief strategy officer tweeted that “Stablecoins are a bridge to a near future where Bitcoin users can-if they wish-peg holdings to any currency on mobile apps in a non-custodial non-KYC way outside the banking system, without needing altcoins, with instant global cheap payments.” In this sense, stablecoins are a stepping stone to broader Bitcoin adoption.

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