Tobias Adrian, director of money and capital markets at the International Monetary Fund (IMF), has warned that some stablecoins could fail if they are backed by risky assets.
IMF director warns of failure of “stablecoins“
An IMF director warned today that some stablecoins could fail. Tobias Adrian warned that there could be continued sales or “runs” of crypto-currency assets, including stablecoins.
He noted that algorithmic stablecoins such as TerraUSD, which collapsed in May, have been the most affected by sales.
However, Tobias Adrian also warned that some fiat-backed stablecoins could experience the same problems. He said these stablecoins are particularly vulnerable to breakdowns if they are not backed by fiat currency.
He added that these stable currencies are “backed by somewhat risky assets” and “are not fully collateralized by money market assets“.
His comments refer to Tether’s USDT stablecoin, which has been consistently criticized for its lack of transparency around its reserves. In fact, the IMF director’s comments were published on the same day that Tether denied rumors of exposure to pappers Chinese commercials.
Despite his concerns, Tobias Adrian noted that some stablecoins are fully backed by cash and are less vulnerable to failure. He did not specifically name stablecoins that fall into this category.
Tobias Adrian and the IMF noted that the effects of failed crypto-currencies have not spilled over into traditional finance. He noted that banks are not exposed to hidden assets through crypto-currencies in the same way they were exposed to “shadow banks” during the financial crisis of 2008.
Although they have little impact on traditional markets, stablecoins are a significant part of the crypto-currency market. Tether (USDT) and USD Coin (USDC) are now among the largest crypto assets in terms of volume and market capitalization.
USDT is the third largest crypto-currency by market capitalization, with an offering of $65 billion. It is also the most traded asset in the last 24 hours, with a volume of $58 billion.
USDC, meanwhile, has a market cap of $55 billion and has circulated $8.2 billion in volume over the past day.