Since the collapse of the underground reservoirs in May, the market has been aware of the risks that stablecoins pose to the market. But this danger is not limited to cryptocurrencies, at least according to Eswar Prasad, a professor at Cornell University in the US.
During an interview with CNBC, Prasad, a professor of economics, said that he had spoken with people associated with the financial market. And in those talks, the regulators said that stablecoins could impact traditional financial markets as well.
In this sense, regulators are more attentive to the bond market, or US debt securities. This market includes bonds issued by both private companies and the government. For example, government bonds and what is known in Brazil as bonds.
Support for stable currencies
According to Prasad, the issue of the risks of stablecoins lies in the way these cryptocurrencies operate. Stablecoins are cryptocurrencies that are pegged to some fiat currency. USDT and USDC, for example, are pegged to the US dollar.
To maintain this parity, stablecoins need reserves that guarantee their value. If there is $1 million in the market, Tether, the issuer of this stablecoin, needs to have at least $1 million in its reserves. These funds prevent the loss of parity and the eventual collapse of the stablecoin.
But according to the latest data, Tether has more than 58% of its reserves in US Treasuries. Equivalent to about 39.7 billion US dollars. Similarly, USDC issuer Circle has about $12.7 billion in Treasuries.
risk of falling
As long as users remain confident in stablecoins, there is no risk. But with the instability of the market, this confidence is gradually diminishing. Tether, for example, has seen the market cap of USDT drop from $78 billion to the current $66 billion.
This means that users have withdrawn USDT for dollars – and this is where the danger lies, according to Prasad. A crisis of confidence in a stablecoin may lead to users redeeming their crypto assets for fiat currency. This, in turn, would cause the issuer to sell its assets in reserves to honor the withdrawals.
In the extreme case, from a complete loss of confidence in stablecoins, issuers will have to sell large amounts of US Treasuries. “And I think so [a] The professor said that the concern of regulators is whether there is a loss of confidence in stablecoins.
The high volume of redemptions, even in a highly liquid market, can cause stock market turmoil, given the importance of the Treasury market to the US financial system. “I think the organizers are really concerned,” Prasad added.
He also mentioned that bond market sentiment is really fragile in the US at the moment. Thus, any incident of stablecoin operation can result in a ripple effect and create huge selling pressure on the securities.