US Federal Reserve Deputy Chairman Michael Barr proposed the creation of a specialized group that will develop the regulation of stablecoins and other crypto assets.

Speaking at the Peterson Institute for International Economics, Michael Barr acknowledged that cryptocurrencies can transform the financial system, but the benefits of innovation can only be realized if there are rules governing the industry. The new task force will help the Fed explore digital assets and keep the agency up to date with the latest technology, Barr said.

“Innovation is always fast-paced, but consumers need to understand that there is money to be made and money to be lost on new financial products,” Barr said.

He noted that the development of regulation of cryptocurrencies should become a “deliberative process”. This will prevent excessive oversight of the industry, which can stifle innovation, while at the same time protecting investors and the financial system as a whole. Particular attention should be paid to the regulation of stablecoins, says Barr. He explained that the assets backing many stablecoins can be illiquid, meaning that they can be difficult to exchange for cash if needed.

According to Barr, the price-liquidity mismatch is the path to mass asset stripping. Therefore, if the Fed does not regulate stablecoins, their widespread adoption could become a threat to the American economy, Barr is convinced.

Caitlin Long, CEO of Custodia Bank, who was denied a master account by the US Federal Reserve Board, was tongue-in-cheek about Barr’s proposal. She mentioned the Silvergate bank, which is facing closure due to its inability to repay debts. Long wrote on Twitter: “Wasn’t the Fed the regulator of Silvergate?”, alluding to the agency’s inability to protect the bank’s customers from bankruptcy.

Michael Barr has previously called for tighter oversight of stablecoins to avoid situations like the collapse of the Terra ecosystem.