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Sunday, February 12, 2023
HomeTipsU.S. Federal Reserve Raises Issues Concerning the ‘Fragility’ of Stablecoins Amid Crypto...

U.S. Federal Reserve Raises Issues Concerning the ‘Fragility’ of Stablecoins Amid Crypto Market Crash

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The U.S. Federal Reserve is issuing one other warning about stablecoins amid the present crypto market crash.

In a financial coverage report despatched to Congress, the Fed’s Board of Governors say current strains within the crypto market have “highlighted the structural fragilities” of stablecoins and different digital property.

The Fed additionally argues that stablecoins current a danger to the monetary system general.

“The collapse in the value of certain stablecoins and recent strains experienced in markets for other digital assets demonstrate the fragility of such structures. More generally, stablecoins that are not backed by safe and sufficiently liquid assets and are not subject to appropriate regulatory standards create risks to investors and potentially to the financial system, including susceptibility to potentially destabilizing runs.”

The Fed additionally says the shortage of transparency concerning the riskiness and backing of stablecoins exacerbates their potential danger.

“In addition, the increasing use of stablecoins to meet margin requirements for levered trading in other cryptocurrencies may amplify volatility in demand for stablecoins and heighten redemption risks.”

Last month, algorithmic stablecoin TerraUSD (UST) misplaced its peg to the US greenback and collapsed together with its affiliated crypto asset Terra (LUNA), wiping out $40 billion in crypto market capitalization.

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Featured Image: Shutterstock/okeykat/INelson

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