A joint call from the United States Treasury Department, the Federal Reserve, and financial regulators for Congress to grant them power over stablecoins and their issuers has drawn a decidedly mixed reaction from the crypto community.
The government bodies, who produced the Report on Stablecoins from the President’s Working Group, appear to have made good on repeated pledges from the Securities and Exchanges Commission Chairman Gary Gensler. The latter has called stablecoins akin to “poker chips” at a “casino table,” and likened the scene to the “Wild West.”
In the report, the group wrote that “the rapid growth of stablecoins increases the urgency of this work.” They warned that “failure to act risks [the] growth of payment stablecoins without adequate protection for users, the financial system and the broader economy.”
The report’s authors told Congress it must vote in favor of legislation that would effectively oblige stablecoin issuers to gain bank-like status, with insured deposits, capital, and liquidity requirements – all falling under central bank supervision.
There was a conciliatory tone from Jeremy Allaire, the CEO and Founder of Circle, the firm that masterminded the fiat-pegged USD coin (USDC).
Allaire wrote that his firm, which is preparing to go public and become “a national digital currency bank,” was “fully supportive of the call for Congress to act and establish Federal banking supervision for stablecoin issuance.”
He added that “the rapid scaling and strategic importance of this to dollar competitiveness in the age of crypto and blockchains is critical.”
But the CEO noted that there were problematic points to note in the report, namely the fact that the Working Group wanted Congress to grant federal supervisors of stablecoin issuers “the power to require that the various ‘entities’ involved in supporting the operation and use of the stablecoin” are “also be able to be supervised and held to ‘appropriate risk management standards.’”
Allaire said that while “conceptually this makes sense,” he added that “in practice” it would be “really complicated,” explaining:
“It’s not really possible to oversee a decentralized network of miners or validators, who are operating infrastructure that is general-purpose web platform infrastructure. Here, there is a lot of work to do, helping regulators distinguish between the public internet (TCP/IP, HTTP, Web3 public chains) and the applications built on top of them.”
Allaire added that clauses pertaining to reserve funds were also potentially problematic, adding:
“Another risk raised is around monetary policy/credit creation risk in a world where stablecoins are viewed as safer than fractional reserve money. [Is the group] suggesting that instead of full reserve that stablecoins should be fractional reserve, for credit creation reasons?”
Many in the crypto community expressed doubts about the Working Group’s claims that stablecoin issuers could fail to protect their reserves adequately, or that their fiat reserves could lose value. The group added that a drop in stablecoin confidence could lead to panicked asset-selling by issuers and a failure to compensate their customers in fiat.
Meanwhile, Samson Mow of Blockstream and the CEO of Pixelmatic claimed the report was a diversionary move from regulators keen to draw attention away from the state of the mainstream economy, opining that it “just sounds like a lot of fear-mongering to distract from the looming threat of hyperinflation.”
“The real systemic risk,” he claimed “is fiat money itself.”
Others balked at the suggestion that Congress could be relayed upon to react in a timely manner on this or any other matter, for that case.
The crypto broadcaster Preston Pysh opined that there was a “sense of urgency” in the report.
One commenter mused: “I wonder what mental gymnastics led” the group conclude that stablecoins could lead to “a loss of payments efficiency?”
Others still cranked up the sarcasm yet further.
The report likely set alarm bells ringing at Meta (formerly Facebook) HQ, where plans to launch the long-awaited Diem stablecoin are still in play. The Working Group called for non-financial businesses to be excluded from stablecoin issuance.
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