"I think that simply illustrates that this is a rapidly growing product, and that there are risks to financial stability, and we need a framework that's appropriate," she said. She later said legislation to address crypto regulation would be "appropriate" this year.
Sen. Pat Toomey, the panel’s ranking Republican who has been pushing legislation to establish stablecoin oversight, quickly pointed out that UST is an algorithmic stablecoin.
“That means by definition it's not backed by cash or securities, as the – if you can call them – more conventional stablecoins,” he said to Yellen. “So I think that's an important distinction."
As requested by President Joe Biden’s executive order on digital assets, Yellen said her Treasury Department "will issue a comprehensive report shortly" that outlines hazards posed by the cryptocurrency industry. But she said the dangers from stablecoins have already been detailed by the President’s Working Group on Financial Markets.
"There we see run risks which could threaten financial stability – risks associated with the payment system and its integrity and risks associated with increased concentration if stablecoins are issued by firms that already have substantial market power," Yellen said. "We definitely see significant risks here."
UPDATE (May 10, 2022, 15:10 UTC): Adds links to additional coverage, additional testimony from the hearing.
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