Regulators are reportedly sounding the alarm over stablecoins, fearing they are poorly understood and could be used to launder money

• Government recently warned stablecoin makers that many consumers don't get that the tokens could lose them money, Bloomberg reported Wednesday.
• Regulators also fear stablecoins could be used to sidestep the formal banking system, letting criminals launder money with impunity.
• The shakiness of stablecoins poses a problem for crypto more broadly.

Regulatory concern is mounting over stablecoins, $4, as officials worry they could be used to dupe consumers or enable money laundering.

According to a $4, officials in the Biden administration recently warned stablecoin makers that many consumers are not aware that the dollar-linked $4 are not federally insured and could result in losses on their investments.

The report, citing a person familiar with the matter, says regulators also fear $4 could be used to sidestep the formal banking system, letting criminals launder money with impunity.

Scrutiny of stablecoins has been building for months, even as the Federal Reserve is $4 backed by the central bank.

In a speech last month, Fed Governor Lael Brainard echoed the worries aired in the Bloomberg report, noting that stablecoins - essentially a form of privately issued money - introduce the risk that the private issuer defaults. That could harm consumers and destabilize the financial system, Brainard said.

Stablecoins, which are in principle backed one-to-one by US dollars, have $4. In February, New York Attorney General Letitia James banned New Yorkers from trading in Tether, the market's largest stablecoin, after an investigation revealed Tether's purported one-to-one backing was not so.

In a statement to Bloomberg, Tether said the company "embraces transparency and regulation" and was not presently accepting US customers.

The shakiness of stablecoins poses a problem for $4 more broadly. Because stablecoins provide an easy way for traders to move between crypto and dollars, they have become a key source of liquidity to the crypto market - notwithstanding their imperfect pegs to the dollar.

Crypto-related money laundering fears were reinforced earlier this month when a UK financial regulator warned a "significantly high" number of crypto firms were not adhering to anti-money laundering requirements.

For a more in-depth discussion, come on over to Business Insider Cryptosphere>$4 — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.

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