The global stablecoin market soared to a new high of $190 billion in November. It broke the previous record of $188 billion in April 2022. This marks an impressive 9.94% growth from October, the biggest monthly jump since November 2021. While stablecoins among altcoins are on the rise, the US Financial Services Oversight Council (FSOC) released its 2024 annual report, flagging stablecoins as a potential threat to financial stability. The report shows that without proper risk management standards, stablecoins are “extremely vulnerable to runs.” It also emphasizes that it poses risks that could ripple through both crypto and traditional financial systems.
Warning for altcoins from FSOC
The FSOC highlighted the heavy concentration in the stablecoin market, noting that a single issuer dominates around 70% of the market’s total value. While Tether (USDT) is not explicitly mentioned in the report, it clearly fits this description, with a market capitalization of $136.8 billion, representing 66.3% of the total stablecoin market of $205.48 billion. The Council warned that the failure of such a dominant player could seriously disrupt the broader crypto market and potentially impact the traditional financial system. Concerns about Tether’s lack of third-party oversight have been raised before, with comparisons to FTX’s liquidity crisis doubling down on fears.
The FSOC also noted the lack of a robust regulatory framework for companies issuing stablecoins. Many companies operate outside of federal oversight, while some have minimal state-level oversight. The Council noted the lack of transparent reporting on assets and reserves, which hinders market discipline and increases fraud risks. The FSOC recalled the collapse of TerraUSD (UST) in 2022. At the time, the stablecoin lost its peg to the US dollar, falling from $1 to $0.09. At this point, he reiterated the risks of unregulated stablecoins and their potential to destabilize the market.
What does the FSOC statement mean?
To help stabilize the current challenges, the FSOC urged Congress to quickly create a federal law to regulate stablecoin issuers. This law should focus on issues such as protecting against evaders, ensuring secure payment systems, safeguarding market integrity and protecting investors. The FSOC also warned that they may take further measures if Congress does not act soon.
Tether CEO Paolo Ardoino recently expressed concerns over Europe’s upcoming MiCA regulations, which require stablecoin issuers to hold at least 60% of their reserves in European banks. Ardoino warned that these rules could introduce “systemic risks” potentially destabilizing the crypto market, as banks can lend up to 90% of their reserves.
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