U.S. Federal Reserve Raises Concerns About the ‘Fragility’ of Stablecoins Amid Crypto Market Crash

The U.S. Federal Reserve is issuing another warning about stablecoins amid the current crypto market crash.

In a monetary policy report sent to Congress, the Fed’s Board of Governors say recent strains in the crypto market have “highlighted the structural fragilities” of stablecoins and other digital assets.

The Fed also argues that stablecoins present a risk to the financial system overall.

“The collapse in the value of certain stablecoins and recent strains experienced in markets for other digital assets demonstrate the fragility of such structures. More generally, 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 Fed also says the lack of transparency regarding the riskiness and backing of stablecoins exacerbates their potential risk.

“In addition, the 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.”

Last month, algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar and collapsed along with its affiliated crypto asset Terra (LUNA), wiping out $40 billion in crypto market capitalization.

Check Price Action

Don’t Miss a Beat – Subscribe to get crypto email alerts delivered directly to your inbox

Follow us on Twitter, Facebook and Telegram

Surf The Daily Hodl Mix

&nbsp
Check Latest News Headlines

 

Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

Featured Image: Shutterstock/okeykat/INelson