Regulators call on Congress to introduce new rules for stablecoins citing financial risk

• The U.S Treasury Department is calling on Congress to introduce new rules for stablecoin issuers to avoid destabilizing the financial system.
• A $1 million bounty to uncover Tether’s backing remains unclaimed despite recent reports that only 10 percent is held in cash and bank deposits.

The U.S Treasury is asking Congress to introduce new rules for cryptocurrencies and specifically Stablecoins. The regulator notes that these forms of cryptocurrencies pose a great risk to the financial system. According to a recommendation report submitted to Congress, the regulator wants Stablecoin issuers to be subject to requirements similar to those of traditional banks and financial institutions. So far, issuers have operated in a grey area where they identify as tech companies offering online services.

Since the start of the year, stablecoins in circulation have risen tremendously reaching more than $130 billion from just under $30 billion.

For U.S regulators, the recent mass interest in cryptocurrencies has led them to take a hard look at the current rules and how much risk is involved. Regulators have identified stablecoins as highly risky since they remain largely unregulated on a federal level. As such, they could lead to bank runs, consumer abuse and payment snafus. The regulator has identified that the best way to introduce regulation is by introducing new rules for stablecoin issuers.

The report notes in part;

Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy.

Treasury Secretary Janet L. Yellen noted that stablecoins are at a critical level. She noted that with appropriate oversight, the digital assets had the potential to support beneficial payments options. But she continued to explain that the “absence of appropriate oversight presents risks to users and the broader system.”

Senator Sherrod Brown who chairs the Senate Banking Committee that welcomed the new report added that regulation was key to protect investors and consumers, and ensure market integrity.

We must work to ensure that any new financial technologies are subject to all of the laws and regulations that protect investors, consumers and markets, and that they compete on a level playing field with traditional financial institutions,

Tether’s $1M Bounty Program

The largest stablecoin issuer, Tether, has in recent times come under fire over its reserves that back Tether (USDT). Earlier in the year, Tether admitted that only 76 percent of its reserves were held in cash and cash equivalents. Some reports have shown that the percentage could be as low as 10 percent.

Related: Tether on the spotlight for minting new USDT used for crypto-loan collateral

Controversy over its reserve has led Hindenburg Research, a forensic research firm, to launch the Hindenburg Tether Bounty Program. With the program, the research firm seeks to uncover “information leading to previously undisclosed details.” A reward of $1 million is on offer to the party(s) that can disclose the details. Announced about a week ago, no details have surfaced yet. Some in the crypto space view Tether as a multi-billion dollar ticking time bomb.