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The head of the U.S. Senate banking committee sent letters on Tuesday to stablecoin issuers and exchanges seeking information on how companies are protecting consumers and investors amid the risks highlighted in the recent report by the President’s Working Group on Financial Markets.
Sen. Sherrod Brown (D-Ohio), chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs, said consumers and investors may not understand how stablecoins work and the risks involved.
“I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms,” Brown wrote in his letter to Circle, the payment services company that operates stablecoin USD coin (USDC).
After publication of this article, Circle CEO Jeremy Allaire tweeted that he was looking forward to “responding and working with you to ensure consumers are appropriately protected.”
Thank you @SenSherrodBrown for the letter inquiring about the important topic of how stablecoin issuers protect consumers. I look forward to responding and working with you to ensure consumers are appropriately protected. https://t.co/RWWmI0erOA
— Jeremy Allaire (@jerallaire) November 24, 2021
Brown also sent letters to cryptocurrency exchanges Coinbase, Gemini and Binance.US, as well as blockchain infrastructure firm Paxos, which operates the USDP stablecoin; decentralized finance company TrustToken, which operates the TUSD stablecoin; and Centre, the Coinbase- and Circle-founded project that oversees the USDC stablecoin.
The report compiled by the President’s Working Group, along with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, is the first step toward establishing federal-level regulatory oversight of the stablecoin sector in the U.S.
The regulators behind the report called on Congress to bring stablecoins under federal supervision. The report indicated that should lawmakers fail to do so, the regulators themselves may step in through the interagency Financial Stability Oversight Council (FSOC), which could designate stablecoin activities “systemically important” and thus subject to tighter supervision.
Stablecoins are cryptocurrencies typically tethered 1:1 to the value of other assets like the U.S. dollar, and issuers maintain the fixed value of these currencies by backing them with reserves that match the value of the coins in circulation. This year, Tether, the issuer of USDT, revealed that about 50% of its reserves were made up of unspecified commercial paper.
In August, Circle disclosed it was under investigation by the U.S. Securities and Exchange Commission (SEC). Tether may also be under the SEC’s microscope. Meanwhile, the European Union is gearing up to approve a 168-page framework to regulate crypto, which proposes additional standards for major stablecoin issuers in particular.
UPDATE (Nov. 24, 0:53 UTC): Adds comment from Circle CEO Jeremy Allaire.