The Federal Reserve Banks of Boston and New York revealed a workers report on Sep. 26 evaluating stablecoins, similar to USDT and USDC, to cash market funds. Key findings within the report embody the commentary that stablecoins and cash market funds comply with comparable patterns throughout runs and that stablecoins might inject instability into the broader monetary system.
The report, titled “Runs and Flights to Security: Are Stablecoins the New Cash Market Funds?” features a complete comparability of investor habits in the course of the stablecoin runs of 2022 and 2023 to investor habits in the course of the cash market fund runs of 2008 and 2020.
Per the publication:
“Our findings present that stablecoins are weak to runs during times of broad crypto market dislocation in addition to idiosyncratic stress occasions. Ought to stablecoins proceed to develop and turn out to be extra interconnected with key monetary markets, similar to short-term funding markets, they might turn out to be a supply of economic instability for the broader monetary system.”
The researchers additionally word that stablecoins seem to have a discrete “break-the-buck” threshold of $0.99, under which redemptions speed up and runs — intervals during which traders flee, probably inflicting an asset crash for remaining traders.
A break-the-buck threshold in cash market funds happens when the web asset worth of a fund drops under a greenback, this could result in investor shares, valued at $1.00, to dip under market worth and trigger traders to hunt protected harbor elsewhere.
As Cointelegraph just lately reported, Italy’s central financial institution can be taking measures to determine contributing components and forestall stablecoin runs. In a latest assertion, the Italian banking authority cited the 2022 Terra Luna collapse for instance that stablecoins “haven’t proved steady in any respect.”
In keeping with the report, Italy has additionally referred to as upon international lawmakers to kind a world regulatory physique to manipulate cryptocurrency, stablecoins, and associated applied sciences.
Associated: ‘It’s going to worsen for banks’ — JPMorgan CEO on overregulation
