Tobias Adrian, director of money and capital markets at the International Monetary Fund (IMF), warned that some stablecoins could fail if they are backed by risky assets.
IMF chief warns of failure of “stablecoins“
An IMF director today warned that some stablecoins could fail. Tobias Adrian warned that there could be continued sales or “runs” of cryptocurrency assets, including stablecoins.
He noted that algorithmic stablecoins such as TerraUSD, which crashed in May, were the hardest hit by the selloff.
However, Tobias Adrian also warned that some fiat-backed stablecoins could experience the same issues. He said these stablecoins are particularly vulnerable to failure if they are not backed by fiat currency.
He added that these stablecoins are “backed by somewhat risky assets” and “are not fully backed by money-type assets“.
His comments refer to Tether’s USDT stablecoin, which has consistently been criticized for its lack of transparency around its reserves. In fact, the IMF chief’s comments were published the same day Tether denied rumors of exposure to papers Chinese traders.
Despite his concerns, Tobias Adrian noted that some stablecoins are fully cash-backed and are less vulnerable to failures. He did not specifically name the stablecoins that fall into this category.
Tobias Adrian and the IMF noted that the effects of failing cryptocurrencies have not trickled down to traditional finance. He noted that banks are not exposed to hidden assets through cryptocurrencies in the same way they have been exposed to “ghost banks” during the financial crisis of 2008.
Although they have little impact on traditional markets, stablecoins make up a significant portion of the cryptocurrency market. Tether (USDT) and USD Coin (USDC) are now among the largest crypto assets by volume and market capitalization.
USDT is the third largest cryptocurrency by market capitalization, with a supply 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 capitalization of $55 billion and has circulated $8.2 billion in volume over the past day.