The cryptocurrency industry is home to over a dozen stablecoins. These currencies are backed by various means, landing them in regulatory hot waters. The Financial Stability Board is convinced many of these assets will not make future regulatory requirements, which is rather problematic.
Financial Stability Board Issues A Clear Warning
There have always been concerns and potential risks with stablecoins. Although these pegged assets cannot deviate from their initial value, their “value” isnt always guaranteed. Some stablecoins are centralized and backed by fiat reserves or other forms of paper money, like bonds. However, several algorithmic pegged currencies exist, relying on crypto assets for their “value”.
That latter approach has proven problematic for various pegged currencies. Last year’s implosion of Terra USD (UST) confirmed that much. Unfortunately, it seems regulators now crack down on the stablecoin industry even further. That has resulted in Paxos being forced to stop issuing BUSD. Similar incidents may occur, per a recent warning by the Financial Stability Board.
In a statement, the FSB hints at the lack of compliance by various stablecoins. That may not be an issue today, but it will certainly be in the future. Projects providing access to pegged currencies must be regulatory compliant today and in the future. However, with new risk management rules looming, passing the “test” will become far more difficult.
No one can deny regulators aim to crack down on crypto in the current climate. It almost appears as if they coordinate these “attacks” somehow. However, the need for better regulation and oversight remains outspoken. The G20 tasked the Financial Stability Board to create a comprehensive regulatory framework for all cryptocurrencies. That includes stablecoins. The framework is expected to be ready in late 2023.
Will It Hinder Crypto’s Growth?
The cryptocurrency industry has seen various setbacks over the years. When fiat currency gateways became harder to access, prices took a tumble. However, the introduction of stablecoins alleviated these concerns. With those currencies now under pressure, new solutions and vehicles will emerge. What those will look like remains unclear, but the crypto industry will unlikely face a big setback.
Much will depend on what the Financial Stability Board comes up with for its regulatory framework later this year. More industry oversight can be a good thing. It should help eliminate bad actors like Sam Bankman-Fried, who single-handedly triggered the collapse of the FTX exchange. In addition, the FSB will emphasize decentralized finance and the risks it represents.