FSOC urges Congress to regulate stablecoins as Tether holds 70% market share
One company holds 70% of the stablecoin market
The government organization "Financial Stability Oversight Council" (FSOC), established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is urging the U.S. Congress to pass legislation that would establish a comprehensive federal framework for regulating stablecoin issuers.
In its latest report, FSOC highlights that stablecoins "continue to pose potential risks to financial stability as they remain highly vulnerable to inadequate risk management standards." Moreover, the sector remains heavily concentrated, with a single firm (referring to Tether) accounting for "approximately 70% of the sector's total market capitalization."
While the FSOC report does not mention specific companies by name, the authors warn that the lack of risk management standards among stablecoin firms makes the sector "vulnerable to runs," with Tether previously coming under scrutiny for failing to provide audits confirming its coins are backed 1:1 by U.S. dollars or other assets.
The issuer of USDT settled charges brought by the U.S. Commodity Futures Trading Commission (CFTC) in 2021 over "misleading or false statements" regarding the reserves backing its stablecoin. However, critics continue to point to the "lack of third-party audits," which they claim make the largest stablecoin an "existential threat to cryptocurrencies."
In May 2022, the collapse of the TerraUSD (UST) stablecoin led to a $40 billion loss in cryptocurrency market value. However, FSOC states that while some stablecoin issuers remain subject to state-level oversight, many "operate outside or without adherence to a comprehensive federal prudential framework."
These firms also often provide "limited verifiable information" about their reserves and assets, making it difficult to ensure "effective market discipline."
Control needs to be strengthened
To mitigate risks, FSOC has recommended that Congress develop a "comprehensive federal prudential framework for stablecoin issuers" and grant federal financial regulators explicit authority to enact rules in the crypto-asset spot market.
This is not the first time FSOC has pushed for such measures. Similar recommendations were made in its 2023 annual report.
Currently, Congress is considering the Stablecoin Payments Transparency Act, which aims to establish clear rules for stablecoin issuers. Although the legislation has yet to pass the House of Representatives, cryptocurrency advocates believe it could gain approval under a new Trump administration.
November has been a record-setting month for stablecoin trading, with volumes surging to $1.81 trillion as of November 25, a 77.5% increase from the previous month, according to CCData. This surge positions stablecoin trading on centralized exchanges to hit its highest level in 2024.
