The issue of whether or not stablecoins are safe to use if they are not backed by cash became a very hot topic recently after the SEC chair, Gary Gensler, first gave voice to the matter. Now, his views are seemingly mirrored by Cynthia Lummis, a well-known pro-crypto Republican Senator, indicating that Lummis shares Gensler’s concerns.
The caution about stablecoins also led Lummis to say that they should be cash-backed, regularly audited, and potentially also only issued by banks.
Stablecoins must be backed by cash and their issues audited
The senator shared her views on the matter this Wednesday during a speech on the Senate floor. She did not only touch upon regular stablecoins but also CBDCs. Lummis noted that there are plenty of benefits to using stablecoins, such as making faster, cheaper payments between people and businesses alike.
She also pointed out that they offer new market opportunities, and push financial inclusion. However, they come with new risks, as well, and the main concern is the trust in regards to their backing.
As it is well-known, stablecoins are cryptocurrencies immune to volatility thanks to the fact that each coin is backed by a certain amount of traditional money, typically the USD. However, if there was ever more stablecoins than the money backing it up, each coin’s price would drop. Therefore, these cryptos, backed by cash and cash equivalents, need to be regularly audited and always fully backed.
Lummis also insisted that stablecoins should be in compliance with AML and sanctions laws. To ensure this, she suggested that they should only be issued by depository institutions, money market funds, and similar vehicles.
Gensler and Lummis are not the only ones who focused their attention on the issue of stablecoins. In fact, they seem to have become the primary regulatory concern in the US. Even Senator Warren Davidson — another crypto supporter — said that they could meet the definition of security. Of course, they do not promise the possibility of making a profit, but they do deliver maintenance of a specific value, Davidson argued, agreeing that this alone is enough to push for regular audits of the issuing companies’ reserves.
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