The Federal Reserve has announced incoming guidance for chartered banks handling stablecoins, specifically focusing on transaction validation processes and risk-mitigation strategies.
According to a report published by Decrypt, The Federal Reserve's latest statement includes plans to supervise transaction validation processes, such as settlement timing, transaction irreversibility, and central authority of transaction records for dollar-pegged stablecoins. Reversible transactions and blacklisting addresses are common features among large stablecoin issuers, including Tether, Circle, and PayPal's upcoming stablecoin.
The Fed intends to implement know-your-client (KYC) measures, ensuring nationally-chartered banks exhibit effective risk-mitigation strategies. This approach includes examining stablecoin issuers' liquidity to meet customer redemptions, likely in response to recent significant bank runs on stablecoins such as Terra's UST and the incident at FTX.
Additionally, the central bank will strengthen its supervisory program to observe all crypto activities within its network of banks, extending to crypto companies and blockchain technology. This program will integrate with existing supervisory processes, engaging experts from banking, finance, technology, and academia.
Although the market has reacted positively to this announcement, it remains unclear whether this indicates a shift toward comprehensive legislation for cryptocurrencies in the US. Current regulatory approaches have been criticized for being unclear and even hostile, with the SEC's aggressive enforcement actions against Binance and Coinbase as prime examples.
The Federal Reserve has also experienced criticism for its handling of the FedNow payments service. Industry insiders are now wondering if this latest development signals a change in tone from regulators and are eager to see if regulatory clarity will emerge soon.