Tether and the Facebook Inc.-backed Diem token were a main focus of a recent meeting US regulators held on the financial risks posed by stablecoins, a fast-growing corner of the cryptocurrency industry, said people familiar with the matter.
The President’s Working Group on Financial Markets, a team of watchdogs led by Treasury Secretary Janet Yellen, was particularly concerned about Tether’s claims that it holds massive amounts of commercial paper — debt that companies issue to meet their short-term funding needs, the people said. Participants likened the situation to an unregulated money-market mutual fund that could be susceptible to a chaotic investor exodus, said the people who asked not to be named because the meeting was private.
Regulators also expressed worries about Diem — a coin being developed by an association that includes Facebook, as well as other companies and nonprofits — because of its potential for widespread adoption. The social media company has almost 3 billion active monthly users.
Yellen urged agency heads at the July 19 meeting to “act quickly” to ensure stablecoins face appropriate rules, according to a brief Treasury Department statement.
The market value of the tokens now exceeds
$100 billion, with Tether accounting for more than half that total. Stablecoins are notable for being pegged to fiat currencies and largely immune to the volatility that plagues Bitcoin and other tokens. But regulators worry they’ve gotten too big and are often used to facilitate illegal financial transactions.
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