Digital Assets
Technological innovation has recently ushered in a wave of digital assets with money-like charac-
teristics. These “cryptocurrencies” arose from a combination of cryptographic and distributed-
ledger technologies, which together provide a foundation for decentralized, peer-to-peer payments.
Cryptocurrencies have not been widely adopted as a means of payment in the United States. They
remain subject to extreme price volatility, are difficult to use without service providers, and have
severe limitations on transaction throughput.
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Many cryptocurrencies also come with a significant
energy footprint
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and make consumers vulnerable to loss, theft, and fraud.
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Stablecoins are a more recent incarnation of cryptocurrency that peg their value to one or more
assets, such as a sovereign currency or commodity.
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Stablecoins pegged to the U.S. dollar are
predominantly used today to facilitate trading of other digital assets, but many firms are exploring
ways to promote stablecoins as a widespread means of payment.
A full discussion of stablecoin arrangements is outside the scope of this paper. However, the
President’s Working Group on Financial Markets (PWG),
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along with the Federal Deposit Insurance
Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), recently published a
report on payment stablecoins.
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The PWG report notes that well-designed and appropriately regu-
lated stablecoins could potentially support faster, more efficient, and more inclusive payment
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Transaction throughput refers to the rate at which a distributed ledger can process transactions within a given time-
frame. Factors such as consensus mechanism used, block size, traffic, and complexity of transactions can affect trans-
action throughput. For example, Bitcoin, which was originally designed as a peer-to-peer digital cash system, is only
capable of supporting roughly five transactions per second and can cost up to $60 per transaction depending on
demand. See Blockchain.com, “Transaction Rate Per Second,” 2021, web page, https://www.blockchain.com/charts/
transactions-per-second, and “Fees Per Transaction (USD),” web page, https://www.blockchain.com/charts/fees-usd-per-
transaction. This may not always be the case for Bitcoin and other cryptocurrencies, of course. Potential solutions for
lower-fee, higher-scale capacity are in development. For comparison, Visa states that it is capable of handling up to
24,000 transactions per second. See Visa, “Visa Acceptance for Retailers,” 2021, web page, https://usa.visa.com/run-
your-business/small-business-tools/retail.html.
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See Forbes Advisor, “Bitcoin’s Energy Usage, Explained,” June 7, 2021, https://www.forbes.com/advisor/investing/
bitcoins-energy-usage-explained/ for additional information on cryptocurrency energy usage.
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According to data from the Federal Trade Commission, consumers have reported losing more than $80 million to crypto-
currency investment scams from October 2020 to March 2021. See the Federal Trade Commission, Consumer Protec-
tion Data Spotlight, May 17, 2021, https://www.ftc.gov/news-events/blogs/data-spotlight/2021/05/cryptocurrency-
buzz-drives-record-investment-scam-losses.
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These underlying assets for a stablecoin are typically held in a reserve pool that could be used to fund redemptions.
When a stablecoin ties its value to a sovereign currency, it often claims to do so with a pool of assets that include bank
deposits and highly liquid securities, such as short-term government bonds, denominated in that currency.
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Executive Order 12631 of March 18, 1988 (Working Group on Financial Markets) established the President’s Working
Group on Financial Markets, which is chaired by the Secretary of the Treasury, or their designee, and includes the Chair
of the Board of Governors of the Federal Reserve System, the Chair of the Securities and Exchange Commission, and
the Chair of the Commodity Futures Trading Commission, or their designees.
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See President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the
Comptroller of the Currency, Report on Stablecoins, November 2021, https://home.treasury.gov/system/files/136/
StableCoinReport_Nov1_508.pdf.
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