The announcement of PYUSD, PayPal’s stablecoin, drew mixed reactions from the community. In response, the US Federal Reserve (Fed) unveiled an increased willingness to monitor new crypto-related banking activities, encompassing custody, secured lending, as well as stablecoin token issuance.
New Federal Reserve Crypto Watch Program
On Monday, August 7, Paypal unveiled its stablecoin PYUSD, sparking a diverse range of reactions within the crypto community, illustrating its polemical effect. However, in less than 24 hours after this announcement, a wave of scams hit various blockchains, leading to the identification of nearly 80 fake tokens.
Against this backdrop, the US Federal Reserve (Fed) appears to have taken steps to expand its oversight of crypto-related activities within the banking industry. This correlation seems evident in the wake of his quick reaction to the Paypal saga.
According to information recently disclosed, the move is part of a revamped oversight program, aimed at encompassing cryptocurrencies and emerging assets, as well as distributed ledger technologies with the potential for significant financial impact.
Within this new oversight program, the Fed has expressed its intention to step up its scrutiny of new crypto-related banking activities. The move encompasses cryptoasset management, cryptocurrency-secured lending, cryptoasset transactions, and the issuance of dollar-backed stablecoins, among others.
” Given the novelty” of new technologies – including crypto – the issues “may not be adequately addressed by existing supervisory approaches and could raise concerns for the wider financial system”says the Fed.
Regulatory issues and safety imperatives!
Unlike other cryptocurrencies, stablecoins engender a relatively higher level of trust among users. Moreover, the American Federal Reserve (Fed) has already shown, through Jerome Powell, its recognition of these assets as a form of money.
Despite several legislative attempts to regulate stablecoins, no bill has yet received approval. The Fed’s rationale for stepping up its oversight hinges on the innovative nature of these technologies, which can potentially raise financial stability concerns.
This monitoring will not only cover projects using DLT technology, but also traditional crypto activities carried out by traditional banking institutions, such as loans and payments. Additionally, the regulator pays particular attention to tokenization as a major area of focus.
The ultimate goal is to ensure that banks manage these activities in a prudent and sound manner. All banks under Fed supervision, including those with less than $10 billion in assets, will be affected by this program, structured according to the level of risk. Therefore, this oversight will also encompass regional financial operators, not just large institutions.
The US Federal Reserve is taking a proactive approach by stepping up oversight of crypto-related activities within banking institutions. While Paypal’s PYUSD stablecoin has already generated significant excitement among its thousands of customers, the Fed could potentially perceive this development as a threat to its FedNow project.
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