Fed Official Cautious About Unregulated Stablecoins Like USDC, USDT
Michael Barr, a high-ranking official at the US Federal Reserve, expressed concern over the growing use of “unregulated” stablecoins pegged to the dollar. Many popular stablecoins are designed to mirror the value of the USD.
Stablecoin Adoption Risky For US Payment System: Barr
In a prepared speech addressing attendees of a fintech conference at the Federal Reserve Bank of Philadelphia, Barr, who has been vice chair for supervision at the central bank since 2022, thinks if stablecoins become entrenched, they may supplant the USD.
Digital assets could pose “significant risks to financial stability, monetary policy, and the US payments system.” Stablecoins, including USDT and USDC, are core to crypto and have been widely used since the first was issued in 2014.
For instance, USDT, issued by Tether Holdings, has a market cap of over $83 billion and is the third most valuable cryptocurrency after Bitcoin and Ethereum.
The second most valuable stablecoin, USDC, though its market cap had slumped over the past few months since March when it briefly depegged following the collapse of the Silicon Valley Bank (SVB), is the second most valuable stablecoin in the top 10. To illustrate its significance and adoption levels in crypto, USDC is worth more than Cardano and Tron.
While stablecoins are deployed on public blockchains like Ethereum and Polygon, they are minted by private entities that the Fed or any other global regulator does not directly regulate. Accordingly, the issuance of USDC or USDT is influenced by demand. The higher the demand, the more stablecoins are issued, an arrangement that is “deeply” concerning to Barr.
In the speech, the Fed official suggested that stablecoin issuers of tokens that track the value of the world’s reserve currency, USD, should remain under the Fed’s direct supervision and authority. This way, like they guide banks under its preview, “the central bank can control these stablecoin issuers.”
Feature image from Canva, chart from TradingView
