Stablecoins pose one of the risk areas for the financial system due to potential problems converting them into fiat. This is stated in the new Financial Stability Report the Fed.
In this regard, the regulator placed “stablecoins” in the same category as certain types of money-market funds and bonds.
Stablecoins […] are backed by assets that may lose value or become illiquid during stress, forming redemption risks. The vulnerability may worsen the lack of transparency regarding the riskiness and liquidity of reserve assets. Moreover, the growing use of stablecoins to meet margin requirements when trading other cryptocurrencies with leverage could amplify demand volatility, — the document states.
The report authors recalled the risk report prepared by the President’s Working Group on Financial Markets on risks associated with “stablecoins.”
Their authors proposed placing issuers of such tokens on a par with banks. In addition to meeting capital and liquidity requirements, the organisations would be subject to federal supervision.
The current Federal Reserve Financial Stability Report was released amid a sharp deviation of the algorithmic stablecoin TerraUSD (UST) from its 1:1 peg to the US dollar. In the night of May 10, the price fell to $0.66 and, by the time of writing, had recovered to $0.93, according to CoinGecko.
With a market capitalization of $16.9 billion, the asset ranks 10th among cryptocurrencies and fourth among stablecoins, with a 9.1% share.
Earlier, the chair of the U.S. Securities and Exchange Commission (SEC) Gary Gensler, called for stronger oversight of stablecoin issuers, and the chair of the Federal Reserve, Jerome Powell. The tightening of their regulation was supported by the head of the OCC within the U.S. Treasury, Michael Hsu.
Paolo Ardoino, CTO of Tether, warned about the danger of algorithmic stablecoins to the market as their capitalization grows.
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