Stablecoins – a form of cryptocurrency that is supposedly backed by real assets – are increasingly gaining popularity in the financial world.
Despite their potential to revolutionize the payment mechanism, their risks are being largely overlooked, warned Timothy Massad, former chair of the Commodity Futures Trading Commission (CFTC).
He posits that the persistent disregard for these risks is not only imprudent but could lead to significant financial instability.
Stablecoins: The bridge or the abyss?
Often dubbed as the bridge between the cryptoverse and the real economy, stablecoins promise the convenience of cryptocurrencies without the volatility. For every stablecoin token, there’s supposed to be an equivalent in real assets, typically the US dollar.
This link to real-world assets offers a sense of security that other volatile cryptocurrencies lack. However, Massad suggests that it’s not the concept of stablecoins that is concerning, but rather the inadequate regulations surrounding them.
Regulators often adopt a hands-off approach, believing it’s best to keep stablecoins outside the regulatory ambit, Massad opined. But that approach is flawed and unworkable.
He emphasized that the beneficial competition stablecoins can offer is only viable if we properly manage the significant risks they pose.
In light of these concerns, Massad is an outspoken advocate for prompt crypto regulations. He insists that investors’ protection should not be delayed by drawn-out litigation processes or waiting for laws to be rewritten.
Recently, he joined forces with Jay Clayton, the former head of the Securities and Exchange Commission, to pen an op-ed piece in The Wall Street Journal. They called for the SEC and the CFTC to jointly establish a self-regulatory organization to draft standards to prevent fraud.
The global implications and potential of stablecoins
Massad acknowledges the potential of stablecoins to expedite payments, particularly in the United States where the existing system is both slower and costlier than in other nations.
He also believes that if the U.S. leads in creating regulatory frameworks for stablecoins, the rest of the world is likely to follow suit.
“It’s evident that several countries are already crafting their own regulatory structures,” he observed. Despite the limited current use of stablecoins, banks are taking notice and reconsidering their systems.
They’re contemplating how to evolve and improve in response to the growth of this new digital asset class.
“I understand the skepticism of many in the government who question the value and usability of stablecoins,” Massad said, sympathizing with those still unconvinced about the utility of this innovation.
“Discovering the real-world value of such a new technology takes time,” he admitted. However, Massad stands firm that sweeping stablecoin risks under the rug is not the solution, emphasizing the need for effective regulations to manage these risks and realize their potential benefits.
The bottom line is clear. If we want to leverage the promise of stablecoins without falling prey to their inherent risks, regulatory action is needed now, not later. The call is out to the CFTC and other regulatory bodies – the question is, will they listen?
