STABLECOINS: PROMOTING INNOVATION WHILE ADDRESSING RISKS
Stablecoins, a type of cryptocurrency, are designed to maintain a stable value relative to a national currency or other reference asset, and be redeemable for fiat currency. They are currently used to facilitate trading, lending and borrowing of other digital assets. The market capitalization of stablecoins exceeded $127 billion as of October 2021.
The U.S. Congress is expected to take up stablecoin legislation in 2022. In a paper by Davis Wright Tremaine LLP, the authors argue that given divergent views on how stablecoins should be regulated, it is not clear whether congressional efforts to establish a federal prudential framework will be able to address the regulatory and supervisory concerns of federal banking regulators while also satisfying the market development interests of stablecoin issuers. Moreover, in developing a framework for federal prudential regulation that advances the interests of all stakeholders, it is important to consider the unique attributes of stablecoins and their attendant risks.
Davis Wright Tremaine LLP recommends federal policymakers consider lessons learned from the past financial crisis when developing a regulatory framework for stablecoins – one that incorporates appropriate recovery and resolution plan requirements given the rapid growth of the stablecoin industry and associated liquidity, operational, and potential systemic risks.
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