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

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 total.

“The collapse within the worth of sure stablecoins and up to date strains skilled in markets for different digital property show the fragility of such buildings. Extra typically, stablecoins that aren’t backed by protected and sufficiently liquid property and will not be topic to acceptable regulatory requirements create dangers to traders and probably to the monetary system, together with susceptibility to probably destabilizing runs.”

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

“As well as, the growing use of stablecoins to satisfy margin necessities for levered buying and selling in different cryptocurrencies might amplify volatility in demand for stablecoins and heighten redemption dangers.”

Final 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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