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US Financial Stability Oversight Council identifies stablecoins and cryptos as threats to financial system

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The US Financial Stability Oversight Council, or FSOC, expressed concern about the proliferation of stablecoins and other digital assets in its annual report released on Friday.

According to the FSOC, illiquidity, a lack of sufficient safeguards, opacity surrounding redemption rights. As well as cyber-attacks could all impair consumer confidence in stablecoins. “During pressured market conditions, a run on stablecoins has the potential to magnify a shock to the economy and financial system”, according to the study.

The study also raised concerns about recent advances in decentralised finance or DeFi. In which the use of high leverage could result in a fire sale. If the price of the underlying asset decreases. A vicious spiral of margin calls and price drops would ensue. According to the research, “users of these services face a risk of loss due to market value changes, operational problems. As well, cybersecurity assaults, among other dangers”. The FSOC recommends that federal and state governments work together to pass legislation on stablecoins and digital currencies.

Despite the fact that the crypto business is largely uncontrolled, the research emphasised its inventive potential:

“The rise of digital assets, as well as the use of accompanying distributed ledger technologies, may create an opportunity for financial infrastructure innovation and modernisation. In light of the rapidly growing market for digital assets, regulatory attention and coordination are vital.”

Bank of America: regulation of stablecoins is a catalyst for mass adoption

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