Regulators Sound the Alarm on Stablecoins

Seeking stability

Financial regulators have urged lawmakers to act fast on legislation to address the rising risk of stablecoins. This type of cryptocurrency — ostensibly backed one-to-one by a stable asset like the dollar, making it more practical as a means for trades and transactions — is booming, with some $130 billion now in circulation. Stablecoin issuers, such as Tether and Circle, are not banks and they are not simply tech companies that sell online services: They operate as both and have few rules to guide them.

In an eagerly anticipated report that the Treasury Department released Monday, officials warned that without more oversight, the rise in reliance on stablecoins could result in bank runs, consumer abuse and payment snafus, and potentially threaten the wider financial system.

Stablecoin issuers should be treated like banks, the report recommended, subjecting them to the same reserve requirements as traditional financial institutions to ensure they can meet the demands of customers to cash out quickly. Others involved in the stablecoin transfer process should be subject to more rules, too, regulators said, including companies that provide services for holding stablecoins. Currently, federal law cannot prevent retailers and other commercial companies from issuing their own stablecoins, potentially creating risky overlaps between commerce and banking.

Delay is dangerous, the regulators said. Stablecoins have not always been as securely backed as issuers claim. “A run occurring under strained market conditions may have the potential to amplify a shock to the economy and the financial system,” the report warned. The S.E.C., C.F.T.C. and other agencies have the power to police certain stablecoin issuers, but the report identified regulatory gaps that only legislators could address. If Congress does not act quickly, the Financial Stability Oversight Council, a body created after the 2008 financial crisis, could step in and designate stablecoins as a potential systemic risk, granting regulators new powers.

Some say legislation isn’t a speedy path to rein in crypto. Tyler Gellasch, a former S.E.C. lawyer who now leads the Healthy Markets Association, questioned whether Congress would take the necessary steps. “Given the incredible growth of the industry and its lobbying prowess, there’s no guarantee that new legislation will lead to more oversight, and frankly, it’s likely to lead to less,” he said. “This report is unquestionably the starting gun for the crypto lobbying games.”

More on crypto:

• Speaking of crypto lobbying, Andreessen Horowitz is ramping it up.

• Singapore wants to become a global crypto hub: “We think the best approach is not to clamp down or ban these things,” its top banking regulator said.

• A cryptocurrency inspired by “Squid Game” soared, spectacularly, before the money vanished.

HERE’S WHAT’S HAPPENING

The Biden administration’s vaccine mandate rules are due soon. Details of the highly anticipated requirements have been sent to the Federal Register and will be published “in coming days,” with a flurry of corporate vaccine mandates expected to follow. Meanwhile, Amazon will let fully vaccinated U.S. warehouse workers skip face masks starting today, subject to federal, state or local law.

Joe Manchin raises new doubts about the White House’s social spending plan. The West Virginia senator complained, again, about the cost of the $1.85 trillion plan and the way it’s linked to a bipartisan $1 trillion infrastructure proposal. That could threaten Democratic leaders’ plan to vote on both bills this week.

Elon Musk’s tweet takes a chunk out of Tesla’s stock. Shares in the electric vehicle maker were down nearly 5 percent in premarket trading after Musk tweeted that the company hadn’t yet signed a contract to sell 100,000 cars to Hertz. News of the deal last week had pushed Tesla’s market cap above $1 trillion.

The “backdoor Roth” appears set to survive. The tax-minimizing strategy, which wealthy people like the PayPal co-founder Peter Thiel use to amass millions in tax-free investment gains, was preserved in the White House’s latest social-spending framework. House Democrats proposed ending the loophole earlier this year.

Rivian aims for a valuation above $60 billion in its I.P.O. The electric vehicle maker disclosed in an updated prospectus that it plans to raise over $8 billion. If Rivian attains its target value, it would be worth more than Honda.

Biden’s big climate pledge

At the COP26 climate conference in Glasgow, President Biden plans to counter skeptics of his commitment to reducing America’s emissions with a new announcement: The U.S. will clamp down hard on methane, one of the most potent greenhouse gases.

The move is the centerpiece of Biden’s agenda at the conference, with 70 countries backing an American and European effort to cut emissions of methane by 30 percent by 2030. Other U.S. moves include joining a pledge to end deforestation by 2030.

It underscores one of many difficulties in addressing climate change. Biden is relying on regulation to score an environmental win while his climate agenda remains stalled in Congress, and could be rolled back by a different administration. There are plenty of other challenges, as highlighted in the early days of the conference:

For more from COP26, follow The Times’s live briefing. Programming at our Climate Hub in Glasgow kicks off tomorrow for in-person and virtual delegates.

“We went from heroes to zero.”

— Leslie Glazar, an official at a union representing distillery employees in Louisville, Ky., who went on strike this fall. Workers’ grievances over their treatment during the pandemic have spurred a rise in labor unrest recently.

Female founders see a surge of funding

Last year, venture capital funding for female-founded companies in the U.S. was muted, with the pandemic having a disproportionately negative effect on investments in companies with at least one woman as a founder. But new research from PitchBook suggests that change is afoot.

This year, start-ups led by women have fared much better. They have raised more venture capital and have completed more exits at greater values than at any point in the past decade, though they still represent a small slice of the overall market.

Female founders raised more than $40 billion through September. That’s almost double the amount invested in female-founded companies in the whole of 2020 or 2019, faster growth than venture deals overall during the same period. However, it still represents only 18 percent of the amount raised by all VC-backed companies in the first nine months of the year.

One reason for the increased interest is the increase in women in VC. The pool of women who are angel investors and general partners at funds, who often actively look to support female founders, has grown in the last two years, according to PitchBook. At the end of 2019, 12 percent of general partners were women, as were 740 angel investors. Today, women make up 15 percent of general partners and there are close to 1,000 female angel investors.

Zillow’s money pit

Zillow, the website known for estimating house values, was a darling of investors in the early stages of the pandemic as the housing market heated up. But the company’s shares have lost half their value since February, and executives could face uncomfortable questions when they report its third-quarter earnings later today.

Three years ago, the company announced plans to join the ranks of its more aggressive users and utilize its pricing estimates to buy and sell houses. Now, Zillow appears to be sitting on thousands of houses worth less than what the company paid for them. Last month, Zillow announced it would temporarily stop buying new homes. It’s now looking to quickly offload 7,000 houses, according to Bloomberg.

It may have underestimated the risk of holding onto houses in the in-between stages of a transaction, a departure from the low-risk, high-margin business of collecting ad revenue on its popular real estate website. Last year, Richard Barton, Zillow’s founder and C.E.O., predicted that the company would be able to profitably flip as many as 5,000 houses a month, and generate $20 billion in revenue a year from that business by 2023. Quickly trying to ramp up to that level, in a housing market that was already low on inventory and starting to cool off, has presented a problem. (Still, although Zillow’s shares have fallen in recent months, they are worth double what they were at the beginning of the pandemic.)

Zillow’s stumble also raises questions about its core product, which is built around its value estimates. Aaron Edelheit, who built a business buying houses in the wake of the Great Recession, tweeted his thanks to Zillow for paying “such an extremely high price” to buy one of his houses this summer. “It appeared they were panic buying,” Edelheit, who is leaving the real estate market to focus on cannabis, told DealBook. “I didn’t get it. I should have shorted the stock.”

THE SPEED READ

Deals

• EF Hutton, the adviser to Donald Trump’s SPAC deal, plans to launch its own blank-check fund. (Bloomberg)

• Nubank, a Brazilian fintech company backed by Berkshire Hathaway, hopes to be valued at more than $50 billion in its I.P.O. (FT)

• DuPont plans to buy the electronics materials maker Rogers for $4 billion as part of a series of deals to remake itself. (WSJ)

• An activist hedge fund aims to block the $4 billion sale of SurveyMonkey’s parent company to Zendesk. (Bloomberg)

• The P.R. giant Edelman named Lex Suvanto as chief executive of its financial communications arm. (Edelman)

Policy

• Democrats’ $1.85 trillion social spending bill would give poor, uninsured adults free private medical coverage, but only for four years. (NYT)

• Facebook said it had found one of the world’s biggest state-run internet troll farms — in Nicaragua. (Insider)

• Yahoo became the latest U.S. tech company to quit China, citing a “challenging” business environment. (AP)

Best of the rest

• The pandemic has forced C.E.O.s to rethink offshoring and outsourcing. (WSJ)

• “America Has Lost the Plot on Covid” (The Atlantic)

• A trial for the lawsuit by the co-founders of Tinder over the value of Match Group’s takeover of the dating app will begin this week. (FT)

• How car shortages are putting the global economy at risk. (NYT)

• “Dow 36,000” finally came true — two decades late. (WSJ)

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