Treasury officials are investigating the risks of a large number of people withdrawing their stablecoins all at once.
In the midst of the massive growth of the stablecoin market, the US Treasury Department is said to be discussing potential regulation for private stablecoins.
The Treasury held several meetings last week to examine the risks of stablecoins to users, markets, or the financial system, as well as to learn about their benefits and consider potential regulation.
“The Treasury Department is meeting with a diverse group of stakeholders, including consumer advocates, members of Congress, and market participants,” said Treasury spokesman John Rizzo.
According to the report, which cites three anonymous sources familiar with the matter, one of the Treasury’s meetings took place last Friday, with officials asking the crypto community if stablecoins would require direct oversight if this type of cryptocurrency became widely adopted. They also reportedly discussed how regulators should mitigate risks if a large number of people withdraw their stablecoins at once, as well as whether major stablecoins should be backed by traditional assets.
Previously, Treasury officials met with a group of banks and credit unions to discuss potential stablecoin regulation. According to one Reuters source, the officials were gathering information but did not share their thoughts on how stablecoins should be regulated.
The Treasury’s increased focus on the stablecoin market comes on the heels of a parabolic rise in stablecoins over the last year. At the time of writing, the total market capitalization of major stablecoins such as Tether (USDT) and USDC Coin (USDC) has risen to more than $125 billion, up from around $37 billion in January. Many traditional finance companies, including payment giant MasterCard, have reaffirmed their support for stablecoin-related solutions, with Visa claiming that stablecoins are “starting to live up to the promise of digital fiat.”
The announcement comes after U.S. Senator Elizabeth Warren referred to the cryptocurrency industry as the “new shadow bank,” suggesting that it is “worth considering” prohibiting US banks from holding reserves to back private stablecoins. Previously, US Treasury Secretary Janet Yellen urged the government to establish a regulatory framework for stablecoins as soon as possible.