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

In an annual report published on Friday, the United States Financial Stability Oversight Council, or FSOC, voiced its snooping over the adoption of stablecoins and other digital assets

Regarding stablecoins, the FSOC said consumer conviction could be undermined by factors such as illiquidity, lack of towardly safeguards, opacity regarding redemption rights, and cyber attacks. “A run on stablecoins during strained market conditions may have the potential to overdraw a shock to the economy and the financial system,” the report said.

The report moreover alerted to developments in decentralized finance, or DeFi, where the use of upper leverage could trigger a fire sale when the price of the underlying windfall declines. This would result in a trundling of margin calls and remoter price declines. In addition, the report outlined that “users of these services squatter risk of loss due to market value fluctuations, operational issues, and cybersecurity threats, among other risks.” In the report’s recommendations, the FSOC calls for a unified effort between federal and state authorities to enact legislation on stablecoins and digital currencies.

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Despite concerns surrounding the much-unregulated nature of the crypto industry, the report highlighted their innovative potential:

The minutiae of digital resources and the use of associated distributed ledger technology may present the opportunity to promote innovation and remoter modernization of financial infrastructure. Regulatory sustentation and coordination are critically important in light of the quickly evolving market for digital assets.

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