Janet Yellen: stablecoins are not a threat to the system

US Treasury Secretary Janet Yellen says the stablecoin market is not large enough to be a concern for financial stability. 

Janet Yellen reassures financial markets about the “volatility” of stablecoins 

The comment comes exclusively from a tweet on the Watcher.Guru account. The US Treasury Secretary wants to reassure the entire crypto community, and beyond, from what has just happened.

JUST IN: ?? US Treasury Secretary Janet Yellen says the stablecoin market has not reached a scale to be a financial stability concern.

— Watcher.Guru (@WatcherGuru) May 12, 2022

From the latest statements, Janet Yellen does not seem to be worried about what just happened to the UST algorithmic stablecoin. 

According to the former Fed Chair, the fall of TerraUSD (UST) is not a wake-up call for financial stability. In fact, she says that the stablecoin market is not yet large enough to invoke the idea of systematic risk.

In traditional finance, a systematic risk is when the failure of an institution, large enough and interconnected enough with other entities, propagates within the financial system, creating a series of chain reactions. 

The subprime mortgage crisis of 2008 is a prime example.

However, these words must be given due weight, as considering only Tether (USDT) and USDC together, their market capitalization currently totals $130 billion. 

In short, it is no longer a niche market. 

Fear of what happened to UST spreads to other stablecoins

The Terra ecosystem episode adds to the list of myriad concerns and uncertainties that are characterizing this particular moment in history. A global pandemic, followed by the war between Russia and Ukraine and inflation that has reached historic highs, are certainly among the factors that are driving insecurity among investors. 

In particular, the cryptocurrency market seemed to be resilient to this succession of less than optimistic scenarios. Until Monday 9 May: apparently the term “Black Monday” seems to come in handy in the investment world. 

During this day, the entire crypto sector began a seemingly unstoppable slump. One particular case that certainly caught the entire market off guard was that of TerraUSD.

The loss of the peg from the dollar caused the entire ecosystem to collapse, bringing down LUNA as well as DeFi protocols such as Anchor, which was also involved in the incident. 

Tighter crypto regulations on the way? 

Are Janet Yellen’s words meant to represent a loosening of the grip on the need to regulate cryptocurrency exchanges and stablecoins? Or do they have the sole purpose of not spreading further panic in the market?

Certainly, the US Treasury Secretary has always been one of the biggest promoters of the idea of regulating the entire crypto sector. Perhaps what happened to LUNA and UST could be an extra push to speed up the process of creating a more