{"id":837,"date":"2022-05-20T15:51:41","date_gmt":"2022-05-20T15:51:41","guid":{"rendered":"https:\/\/grandpascrypto.com\/?p=837"},"modified":"2022-05-20T15:51:44","modified_gmt":"2022-05-20T15:51:44","slug":"new-us-fed-report-warns-about-stablecoin-risks-and-pushes-for-regulations","status":"publish","type":"post","link":"https:\/\/grandpascrypto.com\/new-us-fed-report-warns-about-stablecoin-risks-and-pushes-for-regulations\/","title":{"rendered":"New US Fed Report Warns About Stablecoin Risks and Pushes for Regulations"},"content":{"rendered":"\n

Summary:<\/em><\/strong> The US Fed’s latest \u201cFinancial Stability Report,\u201d released on 9th May amidst the crypto market meltdown of UST and LUNA, talked about the dangerous customer runs that stablecoins could bring to the economy. <\/em><\/p>\n\n\n\n

TerraUSD (UST) lost its peg to the dollar for the second time in three days as government officials aired their worries about the industry in this latest report including treasury secretary Janet Yellen who called for regulations<\/a> citing this event. <\/p>\n\n\n\n

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The report<\/a>, which is a biannual publication issued by the Fed to analyze ongoing threats to the financial system\u2019s stability, delivered a warning that the possibility of abrupt, panicked redemptions of stablecoins is similar to the risk of money-market fund runs as they are backed by assets that may lose value or become illiquid during stress. <\/p>\n\n\n\n

\u201cThese vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins,\u201d said the report while also pointing out that \u201cthe stablecoin sector remained highly concentrated, with the three largest stablecoin issuers\u2014Tether, USD Coin, and Binance USD\u2014constituting more than 80 percent of the total market value.\u201d<\/p>\n\n\n\n

It also said that \u201cthe increasing use of stablecoins to meet margin requirements for levered trading in other cryptocurrencies may amplify volatility in demand for stablecoins and heighten redemption risks.\u201d <\/p>\n\n\n\n

For example, when doing leveraged trading (a common type of margin trading<\/a>) on an exchange like Binance on a BTC-based margin trade, an investor can use their USDT or any other stablecoin to denominate their collateral instead of only BTC. <\/p>\n\n\n\n

The Reserve Primary Fund was one of the first retail money market funds to fall below $1 to $0.97 a share during the 2008 financial crisis. As a result, the entire sector shook, and the government stepped in to support the fund.<\/p>\n\n\n\n

To address the concerns posed by stablecoins, the President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency came up with the \u201cReport on Stablecoins<\/a>\u201d in November 2021 in which they outline the risks and regulatory gaps along with several recommendations and interim measures.<\/p>\n\n\n\n

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Yellen about $UST<\/a> pic.twitter.com\/JESINN5PHM<\/a><\/p>— CR1337 (@cryptonator1337) May 10, 2022<\/a><\/blockquote>