Facebook executive says stablecoins ‘likely’ need more regulation
SEC Chairman Gary Gensler presented a broad view of potential cryptocurrency regulation during a Senate hearing this week, saying that a type of digital asset called stablecoins can be considered security.
The comments come as the Treasury Department is working with other federal agencies to draft a report by next month on potential regulations for stablecoins, a form of cryptocurrency that attaches its value to a commodity or currency. a currency, such as the US dollar.
New rules could have the backing of a leading industry player, David Marcus of Facebook (FB), who led the tech giant’s digital wallet called Novi. Marcus also sits on the board of directors of the Diem Association, a coalition of corporate and nonprofit members who aim to release a stablecoin called Diem that will be traded on Facebook’s new digital wallet.
In a new interview, recorded ahead of Gensler’s comments on Tuesday, Marcus said Yahoo Finance’s stablecoins will “likely” require additional regulation, which should focus on protecting consumers as well as preventing illegal payments like the money laundering.
“Do we need more regulation? Explains Marcus, head of F2, also known as Facebook Financial. “The answer is probably ‘yes’.”
“The first thing is really consumer protection,” he adds. “Do consumers understand what they are buying? And what guarantees do they have to withdraw their money in the event of an adverse event? So, if you are talking about stable coins, what are the reserves made up of?
“Are they fully guaranteed? Reservations? Or are they not fully guaranteed? What if they are fully guaranteed? What are they guaranteed with? ” he adds.
During Gensler’s testimony before the Senate Banking Committee on Tuesday, Democratic Senator Elizabeth Warren (D-MA) questioned the possibility of crypto investors trying to withdraw money during a stock market crash. Gensler said there was little the SEC could do to help investors because crypto exchanges like Coinbase (COIN) had not registered with the SEC.
Last month, Treasury Secretary Janet Yellen called for the swift passage of stable rules in remarks to regulators.
Marcus said the investor risks found in stablecoins depend on the commodities that support a given cryptocurrency.
“In my opinion, very high quality stablecoins are only backed by very short term cash and treasury bills,” he said. “That’s it.”
“Then you could add a capital cushion on top of that, to basically cover unexpected operational losses, or so you need to add another layer of protection,” he says.
Facebook aims to free Novi with Diem by the end of the year, Marcus told Axios earlier this month. Diem, which emerged from Facebook’s efforts to develop a cryptocurrency that began as Libra in 2017, will be pegged to the U.S. dollar, Marcus said.
Libra faced backlash from regulators and lawmakers when it was announced in 2019, and ultimately lost support from backers like Visa (V) and PayPal (PYPL).
Speaking to Yahoo Finance, Marcus said concerns about bribery payments with stablecoins offer regulators an opportunity to improve the clarity of the rules governing such transactions, even though stablecoins are currently used for daily payments in rare circumstances.
“We’re very motivated to solve the payments use case, but stablecoins are primarily used for trading today when people are buying and selling other crypto assets,” he said.
“There are provisions regarding the fight against money laundering, the fight against the financing of terrorism, the application of sanctions – and I think the rules are quite clear,” he said. “It actually offers an opportunity to improve on the current system, which I think it will be.”
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