(Bloomberg). — Treasury officials identified the top risks Tether and other stablecoins pose as they prepared recommendations to tighten oversight of cryptocurrency. 

Ensuring investors can reliably move money in and out of tokens is a top concern for officials crafting a policy framework set to be released in the coming weeks, according to people with knowledge of the matter who declined to be named because the work isn’t complete. They’re also worried that widespread, fire-sale runs on crypto assets could threaten financial stability and that certain stablecoins could scale up dangerously fast, the people said.

Crypto faces a reckoning in Washington as U.S. regulators prepare to clamp down on the rapidly-growing industry — and the Treasury’s recommendations could act as a roadmap for the next steps. The Financial Stability Oversight Council is also expected to launch a formal investigation into stablecoins’ economic risk. This could lead to even greater oversight.

Stablecoins, which are pegged to currencies like the U.S. dollar, are crucial to the crypto market because they’re used to buy other digital tokens. CoinMarketCap.com reports that there is currently $120 billion worth of stablecoins. The digital coins are increasingly used for transactions that resemble traditional bank products, like savings accounts, but they don’t offer the same type of consumer protections.

The people stated that Treasury officials pay particular attention to the way stablecoin transactions get processed and settled and how market conditions affect this. Officials are also worried about how to manage the growth of tokens that are sponsored by tech giants like Facebook Inc (NASDAQ:)., according to the people. Facebook is part of an association which has announced previously plans to launch a stablecoin called Diem.

Unnamed officials from the Treasury Department refused to comment on this report. Bloomberg reported last week, that Treasury and other agencies have been close to making a decision about whether they will conduct an examination into the financial stability of stablecoins after many weeks of discussions.

The need to control the cryptocurrency market has been a central theme of regulators. It is frequently referred to as shadow banking or the Wild West of finance. Recent meetings between Treasury officials and representatives from various industry organizations were held. 

“It is significant and very consequential that we are witnessing early steps to create a regulatory framework around digital assets,” said Tomicah Tillemann, a one-time aide to then-Senator Joe Biden who is now global head of policy at a crypto fund run by venture capital giant Andreessen Horowitz. “That’s a big deal.”

The upcoming report will be delivered to the President’s Working Group on Financial Markets, which includes Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell. The Chair of the Securities and Exchange Commission Gary Gensler has spoken out about the necessity to create crypto-safeguards. Acting Comptroller of the Currency Michael Hsu said this week that regulators must work as a unified force to ensure crypto transactions involving banks are “trustworthy.”

©2021 Bloomberg L.P.