USDT and stable cryptocurrencies are a risk to U.S., officials say

Key facts:

  • A Chair’s Working Group is expected to issue recommendations on stablecoins.
  • The issuance of stablecoins increased sharply in 2021, according to Chainalysis.

The Securities and Exchange Commission (SEC) and the U.S. Treasury Department are debating whether to take action to limit the growth of Tether (USDT) and other stable cryptocurrencies, or stablecoins. The reason is that they would consider them a systemic risk to the U.S. dollar and the U.S. economy.

The information comes from an investigation carried out by the Bloomberg news agency, based on consultations with three people who asked not to be identified. It shows that, for U.S. regulators, cryptocurrencies that maintain parity with the dollar could be a threat to the financial stability of that nation.

Bloomberg indicates that the Treasury and other federal agencies are close to making a decision on whether to launch a review by the Financial Stability Oversight Council. This institution has the ability to label companies, products or activities as “systemic threats to the financial system”. Those so labeled come under “aggressive monitoring by regulators,” according to the report.

According to CoinMarketCap stablecoins have a market capitalization in excess of USD 120 billion. The stablecoin cryptocurrency industry is dominated by USDT, USD Coin (USDC), Binance USD (BUSD), DAI, TerraUSD (UST), True USD (TUSD) and Pax Dollar (USDP), among others. All of them are within the top 100, according to their capitalization.

As indicated by Cryptopedia, which is the educational portal of CryptoNews, most of these coins (among them are USDT, USDC, BUSD and USDP) have collateral in dollars and other traditional financial instruments, for example, treasury bonds. There are also those backed by other cryptocurrencies (DAI, for example) and others without collateral, called “algorithmic” (this is the case of UST).

The stablecoins index prepared by the analytical firm Chainalysis, shows that these financial instruments had a steady growth in their capitalization since 2018, which became parabolic since the beginning of this year. The issuance of stablecoins increased considerably in 2021 to meet market demand.

Stable cryptocurrencies: a tool not only for traders.

These cryptocurrencies, which arose out of the need for some exchanges, given the impossibility of handling fiat money, which is a necessity for traders, are now also used for other purposes.

CryptoNews has reported that, in some Latin American nations and other parts of the world with a high inflation rate, their inhabitants use stable cryptocurrencies to protect their patrimony.

Also, USDT and other cryptocurrencies that maintain parity with the dollar are increasingly used for the exchange of goods and services. This was the case, for example, of a Venezuelan who recently bought an apartment for USD 12,000 with Tether, to give it as a gift to his mother.

Since 2019, there are reported cases of traders who, for operations between Russia and China, use USDT in order to evade financial controls, withholding and taxes. This carries a risk for them, as USD Tether addresses – just like USDC and other centralized cryptocurrencies – are susceptible to being “frozen” by the issuing company, and on more than one occasion this has been done.

Recommendations on stablecoins would come from the Presidency in December

The Bloomberg report, referred to at the beginning of this text, indicates that a Presidential Task Force on Financial Markets, composed of members of multiple U.S. agencies, will issue recommendations on the use of stablecoins in December.

The group includes Treasury Secretary Janett Yellen, Federal Reserve Chairman Jerome Powell and Securities and Exchange Commission Chairman Gary Gensler.

The council could order federal agencies to intervene in the market to reduce the dangers they say stablecoin transactions pose, reports Bloomberg.

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