Stablecoin Risks Grow as Congress Dithers

Congress keeps talking about regulating stablecoins but doing nothing. It’s a lapse that poses growing dangers to investors, the financial system and even (perhaps) national security.

Don’t be fooled by the name: Stablecoins pose some of the greatest risks of any digital asset. The companies that issue the coins, led by Tether Holdings Ltd.’s USDT, offer the crypto equivalent of a dollar (or some other currency or reference asset). Instead of undergoing the huge price swings that seem normal in other digital assets, stablecoins are supposed to preserve their value.


That promise of stability is the key to their unique risk. It has made the tokens a favorite vehicle for payments and transfers in the crypto markets, attracting more than $160 billion. (Securities and Exchange Commission Chair Gary Gensler has called stablecoins the “poker chip” that facilitates speculation in crypto markets.) But there’s no federal law or regulation ensuring that stablecoin issuers keep that money in safe and liquid assets that can be swiftly exchanged for dollars.

Lawmakers shouldn’t waste any more time. They need to pass legislation that addresses two glaring risks.

First, stablecoins need to be stable. That means they must be able to prove, on an audited basis, that they’re backed by actual dollars.