In a new opinion piece, the Washington Post editorial board tacitly supports the Biden administration’s new stablecoin report. Both want new regulations, and a good case does exist for a new federal framework to regulate stablecoins.

But the Post’s editorial misses the mark on why a new framework might be necessary. The editorial, titled Stablecoins may not be stable. That’s a problem, argues that:

The object must be to ensure that credulous investors don’t end up holding a bag of supposedly guaranteed but actually worthless non‐​dollars. The risk, and the challenge for the regulators, is that belatedly policing stablecoins now that so many are in circulation could prompt the type of run on their issuers that the government wants to guard against.

This view currently permeates Washington, but it is only correct in the sense that federal law should help mitigate fraudulent behavior. That is, a federal framework should require relevant disclosures of stablecoin reserves, thus promoting transparency so that coin holders can better evaluate the issuer’s claims about stability.

A lack of transparency about the reserves that are used to stabilize the coin’s value prevents a holder from evaluating the issuer’s stability claims. It also does little to protect holders from fraudulent misconduct.

That is why my Cato colleague, Jennifer Schulp, and I recently proposed a simple framework based on preventing fraud and promoting transparency. It would provide basic collateral requirements and establish a baseline for transparency.

That’s really all that is needed.

After that, the burden should be on the people holding the coins to decide what they’re worth. They should even shoulder that burden if they want to sell them because they fear they are losing value.

The object of federal law should not be to prevent these so‐​called runs by people using stablecoins. Aside from the fact that the stablecoin market remains a tiny portion of broader financial markets, making systemic risk claims vague and imaginary, a federal stability mandate is completely misguided.

Such a framework implies that federal regulators can know the proper value of financial assets, that they should not allow their value to fluctuate, and that they should not allow people to lose money. That kind of framework is not how markets work, it is how they break down, leading to turmoil, federal bailouts, and increased government control.

Congress can do better.