In an annual report released on Friday, the United States Financial Stability Oversight Council, or FSOC, expressed concern over the adoption of stablecoins and other digital assets.
When it comes to stablecoins, the FSOC said that consumer confidence could be undermined by factors such as a lack of liquidity, the absence of adequate safeguards, opacity in terms of redemption rights, and cyberattacks. “A run on stablecoins during tense market conditions may have the potential to amplify a shock to the economy and the financial system,” the report said.
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The report also warned of the evolution of decentralized finance, or DeFi, in which the use of high leverage could trigger a forced sale when the price of the underlying asset falls. This would lead to a cycle of margin calls and further price declines. In addition, the report noted that “users of these services face the risk of suffering losses due to fluctuations in market value, operational problems and cybersecurity threats, among other risks.” In the report’s recommendations, the FSOC calls for a unified effort between federal and state authorities to enact legislation on stablecoins and digital currencies.
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