WASHINGTON: After largely standing aside for years as cryptocurrency grew from a digital curiosity into a volatile but widely embraced innovation, federal regulators are racing to address the potential risks for consumers and financial markets.
Their concerns have only grown as both new and established firms have rushed to find ways to profit from bringing the massive wealth held in cryptocurrency into the traditional financial system through quasi-banking services like interest-bearing accounts and lending.
Now the Treasury Department and other agencies are moving urgently on an initial target for tighter regulation: a fast-growing product called a stablecoin.
Issued by a variety of firms that are currently only lightly regulated through a patchwork of state rules, stablecoins serve as something of a bridge between cryptocurrency markets and the traditional economy.
The value of a stablecoin is ostensibly pegged one-to-one to the United States dollar, gold or some other stable asset. The idea is to make it easier for people holding cryptocurrency — which is notorious for its frequent price swings — to carry out transactions like purchasing goods and services, or to earn interest on their crypto holdings.
The use of stablecoins is surging rapidly, and regulators have grown increasingly concerned that they are not in fact stable, and could lead to a digital-era bank run. Just this year, dollar-tied stablecoins such as Tether token, USD Coin and Pax Dollar have jumped from $30 billion in circulation in January to about $125 billion as of mid-September.
“It is important