Stablecoins are ostensibly safer than regular cryptocurrencies because they are linked to less volatile assets, but US regulators appear to be skeptical about it.
According to Bloomberg, the Treasury Department and other federal agencies are close to a possible crackdown on stablecoins as a result of a Financial Stability Oversight Council review.
Officials are concerned that digital money is largely unregulated and may eventually destabilize the financial system rather than protect it.
Tether is thought to be the most concerning issue for a Presidential Working Group on Financial Markets.
The cryptocurrency operators claimed that holding large amounts of corporate debt helps them to stabilize their funds. According to Bloomberg, this could be vulnerable to “chaotic investor runs” if cryptocurrency values fall.
While no final decision is expected until December, when the Working Group is expected to issue recommendations, there is reportedly a “consensus” in favor of an Oversight Council review.
If this occurs, the council may classify stablecoins as threats that require strict regulation. Several cryptocurrencies may be forced to change their business models or even close down.
Stablecoins are currently threatened by government competition. The Federal Reserve is considering launching a central bank cryptocurrency.
In the United States, such a move could render private options obsolete there wouldn’t be much point in them if there was an official, potentially more reliable equivalent. Whatever happens, it’s safe to say that the current stablecoin market will not last long if a review is conducted.