The Federal Reserve Bank (FRB) of New York is calling for greater interoperability between stackable coins to prevent one stackable coin from replacing other coins because of better collateral.
Researchers from the FRB of New York published a report titled “Implications of Digital Assets for Financial Stability” in which they stated that the growing popularity of USD Coin (USDC), as opposed to Tether (USDT), poses a threat to the financial system as a whole, as it increases risks to smaller issuers.
According to experts, the more stable a stablecoin coin is, the greater the threat it poses to the financial system. A larger issuer would be able to push its competitors out of the market, leading to massive coin sales. Notably, experts have previously been concerned that a particular stablecoin would not be able to maintain a 1:1 peg to the dollar.
To mitigate the risks, experts argue, regulators “should have the authority to implement standards to ensure compatibility between stablecoin.” One possible way to achieve greater interoperability is through the use of so-called “bridges”, which allow tokens intended for use in one blockchain to be deployed in another.
“In addition, Congress may consider other standards for custodial wallet providers, such as restrictions on affiliation with commercial entities or on the use of user transaction data,” the report says.
Earlier, New York Fed President John C. Williams urged banks to prepare for the coming fundamental transformation of digital payments and closely monitor the implications of the technological transformation.
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