The Fed express concern over fiat-backed stablecoins not having sufficient liquid assets backing their issuances.
The Federal Reserve published the latest “Monetary Policy Report” on Friday, categorizing the stablecoin industry – particularly the algorithmic stablecoins – as a risk of financial instability. Meanwhile, it expressed concern regarding the concentration of fiat-backed stablecoins on Tether’s USDT and Binance’s BUSD.highlighted
Though without directly naming the algorithmic stablecoin – UST – that dragged the broader market to plunge in May, the Fed hinted at the project as an indicator of floating fragility within the industry. However, fiat-backed stablecoins – with a much higher degree of concentration and capitalization – are more concerning to the Central Bank.
“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 fi nancial system, including susceptibility to potentially destabilizing runs.”
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