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Treasury Department’s FSOC Says Stablecoins Represent Potential Risk to US Financial Stability

Treasury Department’s FSOC Says Stablecoins Represent Potential Risk to US Financial Stability

The U.S Treasury Department’s Financial Stability Oversight Council (FSOC) says the role of stablecoins as a bridge between the digital asset market and the broader financial system warrants continued attention. In its 2024 annual report, the FSOC says that stablecoins – commodity or currency-pegged cryptocurrencies – do not have adequate safeguards against risks and failures.  […]

The post Treasury Department’s FSOC Says Stablecoins Represent Potential Risk to US Financial Stability appeared first on The Daily Hodl.

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FSOC warns stablecoins remain a ‘potential risk’ to financial stability

In its 2024 annual report, the FSOC said that stablecoins are “acutely vulnerable to runs absent appropriate risk management standards.”

Stablecoins' lack of solid risk management standards exposes them to ongoing risks that could also put financial stability in danger, according to the United States Financial Services Oversight Council (FSOC).

“Stablecoins continue to represent a potential risk to financial stability because they are acutely vulnerable to runs absent appropriate risk management standards,” the FSOC said in its annual report published on Dec. 6.

In line with the council’s views over recent years, the FSOC pointed out that the stablecoin market is “heavily concentrated, with a single firm holding around 70 percent of the sector’s total market value.”

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Top US Regulators Urge Congress to Pass Legislation on Crypto Assets

Top US Regulators Urge Congress to Pass Legislation on Crypto AssetsThe U.S. Financial Stability Oversight Council (FSOC), a group of the country’s top financial regulators, has urged Congress to pass legislation for the regulation of crypto assets. Treasury Secretary Janet Yellen said: “Crypto-asset activities could pose risks to U.S. financial stability if their interconnections with the traditional financial system or their overall scale were to […]

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U.S. Treasury Watchdog Suggests Crypto Activities Could Threaten Financial Stability

U.S. Treasury Watchdog Suggests Crypto Activities Could Threaten Financial Stability

The Treasury Department’s Financial Stability Oversight Council (FSOC) is weighing in on crypto assets and their potential to affect the traditional financial structure of the US. The council, which was formed by the Dodd-Frank Act to help identify financial stability risks in the United States, says that crypto assets such as stablecoins may compromise the […]

The post U.S. Treasury Watchdog Suggests Crypto Activities Could Threaten Financial Stability appeared first on The Daily Hodl.

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

"The Council recommends that state and federal regulators review available regulations and tools that could be applied to digital assets," says the FSOC.

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

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

The report also alerted to developments in decentralized finance, or DeFi, where the use of high leverage could trigger a fire sale when the price of the underlying asset declines. This would result in a cycle of margin calls and further price declines. In addition, the report outlined that "users of these services face 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.

Related: SEC delays decisions on Bitwise and Grayscale’s Bitcoin ETFs

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

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

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