Stablecoins—an integral part of the cryptocurrency ecosystem—are increasingly under scrutiny from global financial regulators. Recently, the U.S. Financial Stability Oversight Council (FSOC) issued a warning about the severe risks stablecoins might pose to the financial system, especially in the absence of a comprehensive regulatory framework.
In its annual report released on December 6, FSOC highlighted that stablecoins are vulnerable to mass withdrawals, potentially triggering shockwaves not only within the cryptocurrency market but also across traditional finance. One of the key weaknesses emphasized was the concentration of power in a handful of issuers.
Specifically, a single organization currently dominates approximately 70% of the market, accounting for over $205 billion in value. Although not explicitly named, Tether—holding a 66.3% market share—is widely believed to be the focus. FSOC warned that the collapse of Tether could create a domino effect similar to the FTX or TerraUSD (UST) crises in the past.
In reality, Tether has faced numerous criticisms regarding transparency and the lack of independent audits. These concerns have raised fears of potential liquidity crises, especially during periods of significant market volatility. The TerraUSD disaster in 2022 serves as a stark reminder: the rapid devaluation of this stablecoin led to billions of dollars vanishing and inflicted heavy losses on investors.
FSOC stressed that the absence of a comprehensive federal regulatory framework for stablecoins represents a major risk. To ensure stability, the report called for the establishment of a regulatory framework focused on mitigating mass withdrawal risks, enhancing liquidity management, and protecting investor interests.
Meanwhile, other regions, such as Europe, are also tightening their rules on stablecoins. New requirements, such as holding 60% of reserve assets in banks, aim to ensure stability but may present significant challenges for issuers.
As stablecoins gain traction, it is clear that only a robust regulatory system can support the sustainable growth of this sector while minimizing risks to the global economy.