US Bond And Treasury Markets Face Risk From Stablecoins – Crypto News – Crypto News
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US Bond And Treasury Markets Face Risk From Stablecoins – Crypto News

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One area where US regulators are keeping a close watch is the widely expanding crypto stablecoin market. The stablecoin market has already grown to more than $200 billion in size last year. However, one academic has warned that a major stablecoin collapse could severely impact the US bond market.

Stablecoins are basically digital assets pegged to fiat currencies like the US Dollar. Some of the most popular stablecoins currently used in the market are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).

Stablecoins have been the go-to choice for crypto investors looking to trade in and out of different digital assets or convert them into fiat money. Eswar Prasad, an economics professor at Cornell University said that he has spoken to a few regulators who are worried about the impact stablecoins could have on traditional financial markets.

Stablecoins Pose Risks to US Bonds and Treasury

To understand why a stablecoin run could impact the market, let’s take a deeper look. Currently, USDT stablecoin issuer Tether has more than 58% of its reserves held in US Treasuries which account for a staggering $39.7 billion. Similarly, USDC stablecoin issuer Circle has around $12.7 billion worth of Treasurys in its reserve. BUSD issuer Paxos on the other hand has $6 billion of US Treasury bills.

Now any case of a potential run on a stablecoin would cause users to redeem their crypto assets for fiat. This in turn would cause the issuer to sell-off their assets in the reserves which could, in turn, lead to them selling large amounts of US Treasurys. Speaking to CNBC at the Crypto Finance Conference in St. Moritz, Switzerland said,

“And I think [the] The concern of regulators is if there were to be a loss of confidence in stablecoins … then you could have a wave of redemptions, which would in turn mean that the stablecoin issuers would have to redeem their holdings of Treasury securities.

And a large volume of redemptions even in a fairly liquid market can create turmoil in the underlying securities market. And given how important the Treasury securities market is to the broader financial system in the US … I think regulators are rightly concerned.”

He also mentioned that the bond market sentiment is already fragile in the US currently. Thus, any such incident of a stablecoin run could lead to a multiplier effect and create a large selling pressure on Treasurys.

The collapse of the TerraUSD stablecoin already sent shockwaves in the broader crypto space last year. Last year the Fed warned that “stablecoins remain prone to runs, and many bond and bank loan mutual funds continue to be vulnerable to redemption risks”.

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explores his culinary skills.

The content presented may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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