The White House released its first-ever framework for cryptocurrency regulation, offering insights on how the financial services industry should evolve to include digital currencies after six months of review of the cryptocurrency space.

The reports from the U.S. Treasury Department, the White House Office of Science Technology and Policy, the U.S. Commerce Department, and the U.S Justice Department all largely recommended that the Biden administration should continue to assess the potential risks of digital currencies and explore the creation of a digital dollar.

"The reports clearly identify the real challenges and risks from digital assets used fo financial services," Treasury Secretary Janet Yellen told reporters last week in a briefing. "If these risks are mitigated, digital assets and other emerging technologies could offer significant opportunities."

The reports and the White House's new framework all follow President Joe Biden's executive order issued in March, in which the president called on federal agencies research the benefits and risks and offer recommendations in relation to the cryptocurrency industry.

Here are some key takeaways from the White House's new framework:

Protecting Consumers, Businesses, and Investors

Digital assets pose meaningful risks to consumers, businesses, and investors due to the currently highly volatile nature of the cryptocurrency industry, according to the White House fact sheet. Moreover, almost one quarter of all digital coin offerings had disclosure or transparency issues, according to a study, including false promises of guaranteed returns.

In order to protect Americans from fraud in the digital currency space, the White House plans to encourage regulators like the U.S. Securities and Exchange Commission (SEC) to aggressively pursue investigations and enforcement actions against unlawful practices. The administration also recommends the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) to increase their monitoring efforts of consumer complaints and enforce against abuse in the industry.

Fostering Financial Stability

As digital currencies and the mainstream financial system continue to become increasingly intertwined, the federal government is assessing ways to make the industry more stable to help prevent crashes, making cryptocurrencies more of an asset like gold.

The White House points to the collapse of the so-called stablecoin TerraUSD as an example for the need to to actually stabilize the industry, as the stable coin project's crash led to a series of insolvencies that erased nearly $600 billion in wealth.

To make stablecoins more of an asset, the White House calls on the Treasury Department to "work with financial institutions to bolster their capacity to identify and mitigate cyber vulnerabilities by sharing information and promoting a wide range of data sets and analytical tools," and team up with other agencies to "identify, track, and analyze emerging strategic risks that relate to digital asset markets."

Innovation and Possible Digital Dollar

The framework outlines the potential for "significant benefits" from a U.S. central bank digital currency, or CBDC, better known as a digital dollar. Those benefits include the development of a more efficient payments system, faster cross-border transactions, creating a foundation for further technological innovations, and being more environmentally sustainable, according to the White House.

Moreover, a digital dollar could "promote financial inclusion and equity by enabling assess for a broad set of consumers, and foster economic growth and stability, protect against cyber and operational risk, safeguard the privacy of sensitive data, and minimize risk of illicit financial transactions," according to the White House.

To explore the possibility of a digital dollar, the federal government has developed Policy Objectives for U.S. CBDC System and calls on the Federal Reserve to further its research, experimentation and evaluation of a digital dollar.