On May 10, Treasury Secretary Janet Yellen presented the Financial Stability Oversight Council (FSOC) Annual Report before the Senate Banking Committee about the need for sensible stablecoin legislation (we have previously discussed the President’s Working Group (PWG) report on stablecoins here and here). Secretary Yellen cites the findings in the PWG report as reason to conclude that “the current statutory and regulatory frameworks don’t provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment products, and urges Congress to enact legislation to ensure that stablecoins and such arrangements have a federal prudential framework.”

Coincidentally, on the day before Secretary Yellen’s testimony, a popular algorithmic stablecoin pegged to the U.S. dollar lost almost all of its value. The rapid decline of a stablecoin that was supposed to reflect the value of the U.S. dollar and that proponents hoped one day would replace the fiat currency prompted the Treasury Secretary to emphasize that there are unaddressed financial risks with stablecoins and that a framework of regulation is appropriate.

Putting It Into Practice: On May 12, SEC Commissioner Hester Peirce recited a now-familiar refrain in the wake of the stablecoin crash as a reason to believe that regulation is right around the corner. Commissioner Peirce added that such potential regulation should make room for a “trial-and-error” regulatory framework, but to date, there is no indication that such regulation is actually imminent.