The rise of stablecoins was one of crypto’s biggest stories in 2024.
As the Friday (Jan. 10) request for comment on new regulations by the U.S. Consumer Financial Protection Bureau (CFPB) reveals, that rise has not gone unnoticed.
In a last-minute policy push, the agency’s current leadership is pitching an interpretive rule outlining how the Electronic Fund Transfer Act, which provides consumers with protections against errors and fraud, applies to new types of digital payment mechanisms, such as those currently offered through large technology companies and video gaming platforms, as well as stablecoins and other digital currencies that are not widely used today in consumer transactions.
Stablecoins have become a prominent topic in FinTech, gaining significant momentum over the past 12 to 18 months due to institutional interest from companies like PayPal, Visa and Stripe, as well as political developments such as the reelection of Donald Trump.
Unlike other cryptocurrencies, stablecoins are designed to maintain a stable value by being pegged to assets like fiat currencies (e.g., USD), commodities (e.g., gold) or through algorithms. This intrinsic stability makes them appealing as a medium of exchange and store of value.
However, the utility and stability of stablecoins can vary depending on their design and the trustworthiness of their issuers. For instance, fiat-collateralized stablecoins like USDT and USDC are backed by reserves of fiat currency, while algorithmic stablecoins rely on complex algorithms to maintain their peg, which can sometimes lead to instability.
“When people pay for their family expenses using new forms of digital payments, they must be confident that their transactions are not tainted by harmful surveillance or errors,” said CFPB Director Rohit Chopra in a statement. “The CFPB is seeking public input on how to apply longstanding consumer and privacy protections to new and emerging payment mechanisms.”
Read more: Stablecoin Sandwiches? Here’s What CFOs Need to Know About Crypto Jargon
While the current presidential administration’s CFPB is tackling stablecoins and digital payments with a last-ditch regulatory push, the proposal’s future remains in question as in the incoming administration is likely to replace CFPB’s leadership and appoint a new head.
If the CFPB’s rule gains traction, it could set a precedent for how other regulatory bodies approach digital assets. For now, though, crypto proponents have argued that stablecoins — still far from a household name — shouldn’t be hemmed in by rules designed for traditional financial systems.
Beyond stablecoins specifically, the CFPB’s rules are also seeking to regulate “virtual currency wallets” that can hold and transfer fungible tokens and stablecoins, alleging that they should be considered a consumer account under the CFPB’s jurisdiction.
Under this regime, the wallet provider and not the consumer would be responsible for any “unauthorized transfers” including “transfers initiated by a person who obtained a consumer’s access device through fraud or robbery . . . [or] when a bad actor obtains a consumer’s account credential through computer hacking or other forms of cyber theft and uses that credential to steal funds.”
Still, the CFPB’s proposal points are not without teeth. As it relates to the watchdog’s initiative of better understanding how companies that offer or provide consumer financial products or services collect, use, share and protect consumers’ personal financial data, including data harvested from payments; it comes against a backdrop where on Thursday (Jan. 9) news broke that Coinbase may in fact have to share customer data it has collected.
Read more: 5 Blockchain Projects the World’s Biggest Banks Are Behind
While stablecoins offer the promise of combining the stability of traditional currencies with the advantages of digital assets, their actual value and stability depend on factors such as their design, the credibility of their issuers and the regulatory landscape.
Stablecoins are reshaping how institutions think about payments and liquidity. From settling trades in near-real-time to providing a programmable form of money, they’re garnering greater enterprise interest across areas like treasury management, trade finance and tokenized securities.
Large financial players are increasingly experimenting with stablecoins to streamline operations and cut costs, suggesting a future where these digital assets could underpin elements of the global financial system. PYMNTS covered Friday how, from reimagining cross-border payments to transforming trade finance and loan servicing, several leading global banks have been quietly leveraging blockchain in the background for years to address long-standing inefficiencies and unlock new opportunities.
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