Making the case for stablecoins
Financial regulators are racing to regulate stablecoins. These digital currencies pegged to a stable asset like the dollar are used in crypto trading, banking and decentralized finance, addressing the problem of price volatility that plagues Bitcoin and others. Stablecoins have become an important bridge between digital currencies and the traditional financial system.
But despite their name, stablecoins may be shaky. The urgency among regulators to rein in the industry has, in turn, generated a flurry of crypto industry lobbying all over Washington, Eric Lipton, Jeanna Smialek and DealBook’s Ephrat Livni report.
From boom to bank run? In their short history, lightly regulated stablecoin issuers have shown that they don’t always have the cash reserves they claim. Tether, the company behind the most popular stablecoin, settled an investigation by the New York attorney general this year that alleged that it had obscured what it held in reserve. Officials fear a digital-era bank run may loom if new rules aren’t created soon for the booming stablecoin sector.
“Regulators really start to care more when risks get greater for society,” said Jeremy Allaire, the C.E.O. of Circle, a payments and digital currency company that helped create the fast-growing stablecoin USD Coin with the crypto exchange Coinbase. Collectively, dollar-tied stablecoins have jumped from $30 billion in circulation in January to about $125 billion as of mid-September.
Executives are pushing their perspectives. Ahead of a Treasury Department report on stablecoins expected this fall, crypto businesses have in recent weeks held dozens of meetings with cabinet members, White House staff members, federal lawmakers and financial regulators. Tight regulations could drive innovation abroad, hamper financial inclusion, risk the dollar’s primacy and kill the promise of digital finance, the industry argues. And each company is advancing a view on regulation that, if embraced, would put them ahead of the competition.
“If we think back on the 20th century, first you had key innovations like aviation or automobiles,” said Tomicah Tillemann, a onetime aide to Joe Biden when Mr. Biden was a senator but who now works for Andreessen Horowitz, the venture capital firm that’s a major crypto investor. “And then you have investments in regulatory frameworks that helped to bring the benefits of those technologies to larger numbers of people.”
HERE’S WHAT’S HAPPENING
A government cash crunch is weeks away. In a report today, the Bipartisan Policy Center said that the U.S. government could run out of cash and start missing payments on things like Social Security checks as soon as Oct. 15, but no later than Nov. 4. The White House has started to advise federal agencies to…
Read more:Here Come the Crypto Rules