Stablecoins need regulatory ‘architecture’ to avoid consumer harm

The establishment of an “intentional architecture” for stablecoins that takes into account stability, interoperability and separability, will help to protect the US dollar and consumers, according to the acting comptroller of the currency.

In a speech to the Institute of International Economic Law at Georgetown University Law Center, Michael Hsu made his comments on stablecoins because they have become “a hot topic here in Washington”.

Speaking on April 8, 2022, Hsu said: “Getting stablecoins right from a regulatory policy perspective is important because getting them wrong could result in ordinary people getting hurt. Policy errors could also impede the potential for the dollar to serve as the base currency in a future digital economy.”

Earlier this year, the Financial Stability Board (FSB) published a report warning of the risks of crypto-assets to financial stability. The report focused on “unbacked” crypto-assets, stablecoins and decentralized finance and crypto-asset trading platforms.

Hsu also noted that “scams, hacks, and fraud in the crypto space are a problem”.

But he told the Institute that the architecture for a stablecoin system “can be viewed through the lens of three key policy issues: stability, interoperability, and separability”.

Hsu argued that without interoperability among USD-based stablecoins, the risk of digital ecosystems being “fragmented and exclusive” is “heightened”, adding that “in the long-run, interoperability between stablecoins and with the dollar... would help ensure openness and inclusion”.

“It would also help facilitate broader use of the US dollar — not a particular corporate-backed stablecoin — as the base currency for trade and finance in a blockchain-based digital future.”

He said that uncertainty regarding the future of digital assets had created challenges for policymakers, as well as financial institutions, requiring “strong collaboration across government”.

“While there remains a wide range of perspectives on crypto’s future, there appears to be an emerging consensus that rules-of-the-road and safeguards are needed today to protect people and balance the risks and benefits of blockchain technology as it continues to evolve,” Hsu concluded.