The United States Treasury Department is reported to be preparing a report emphasizing redemption challenges posed by stablecoins, as well as the potential impact of its influence on the crypto economy.
Moreover, Bloomberg reported on September 1 from anonymous sources that Treasury officials are drafting policies that will ensure stablecoin owners can convert their tokens between stablecoins and other assets freely.
As stated in the report, lawmakers hope to reduce "the most pressing risks" associated with Tether (USDT) and other stable tokens. Additionally, they emphasize how a "fire-sale run" on crypto assets could threaten financial stability broadly.
The redemption process and backing of Tether have long been scrutinized by critics, with some users complaining that they have not been able to redeem USDT per year using the company's website.
Tether, a stablecoin that has failed to deliver promised audits for years, has released attestation reports claiming $62.6 billion in assets under its control 49% of which are commercial paper, and 10% are cash and bank deposits.
Tether is said to be the biggest concern of Treasury officials, but the dominance of USDT over stablecoin markets is eroding since the start of 2021.
As of today, Tether represents 56.5% of the combined stablecoin market capitalization, down from 76% at the beginning of the year, according to CoinGecko.
While Tether's market share has declined, USD Coin (USDC) and Binance USD (BUSD) have gained significant market share since 2013, with USDC capturing 13.7% of stablecoin capitalization and BUSD capturing 10.4%.
TerraUSD (UST) has grown from 0.65% to 2.11%, while MakerDAO's Dai has increased from 4.23% to 5.13% during 2021.
In addition, CoinGecko's data shows a decrease in the market share of Paxos Dollar (USDP) from 1.15% to 0.85%. Despite this, every stablecoin tracked by CoinGecko saw its overall market cap grow in 2021.
Stablecoins allow you to buy other digital tokens using them as they are pegged to local currencies such as the U.S. dollar. According to CoinMarketCap, stablecoins now have a market valuation of more than $120 billion.
There is a growing use of such digital coins for transactions that resemble traditional bank products, like savings accounts, but they don't provide the same level of protection to consumers.