The US Federal Reserve (Fed) has published its semi-annual financial stability report, which once again highlighted the risks of using stable cryptocurrencies.
The report notes that financial markets, including cryptocurrencies, have been significantly impacted by events in Ukraine, the spread of the Omicron coronavirus strain, and “significant and prolonged inflation.”
At the same time, the total capitalization of stablecoins reaches $180 billion, of which 80% falls on the three largest ones – USDT, USDC and BUSD. Officials believe these stablecoins are backed by assets that could lose value or liquidity in a time of financial crisis. In addition, these risks are exacerbated by a lack of transparency.
Also, analysts from the US Federal Reserve emphasized that the widespread use of stablecoins in margin trading with other cryptocurrencies “may increase the volatility of demand for stablecoins and increase the risks of redemption.”
Interestingly, the recent events with the algorithmic stablecoin UST do confirm the Fed’s concerns. During the fall of the cryptocurrency market, the TerraUSD algorithm was unable to maintain the peg to the US dollar. As a result, the UST fell to $0.61. As of publication time, collateral is even more lacking – UST is trading at $0.34.
