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20th June 2022 > > Stablecoins.


Stablecoins remain a key concern for me.

Market Snap (at time of writing)

Market Wrap

Touch of a rebound there in crypto prices, with the market managing to regain the psychologically important 2-handle late last night. Long may that last, making fools of all those who claimed yet again that cryptos are dead.

The press is focussing on BTC’s recent travails, but it is heartening to see The Times is talking to somebody who knows a thing or two about cryptos:

Curious Cryptos’ Commentary – Stablecoins

On the 12th March 2022 the CCC made this claim:

“Stablecoins are potentially the single biggest risk to the crypto industry.”

The Terra fiasco and the collapse of UST from a dollar to less than a cent has been a key factor in the recent market weakness.

The CCC has always been critical of algorithmic stablecoins, and I have previously expressed concerns about the lack of visibility on the type and quality of assets backing collateralised stablecoins, such as Tether (USDT).

It is good to know that the bigwigs at The Federal Reserve have finally taken my comments and criticism on board and are urging action. On Friday the latest “Monetary Policy Report” identified algorithmic stablecoins as a risk of financial instability (you don’t say) but that fiat-backed stablecoins are of even more concern:

“Stablecoins that are not backed by safe and sufficiently liquid assets and are not subject to appropriate regulatory standards create risks to investors and potentially to the financial system, including susceptibility to potentially destabilizing runs.”

The key issue with UST and other stablecoins is the lack of disclosure and visibility regarding the assets, though we do know that some loans backed by crypto collateral form part of the asset base for UST.

This introduces correlation risk in the very worst place to have correlation risk and is an ongoing concern of mine.

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