key takeaways
- international money fund[IMF]Director of Tobias Adrian says that some fiat currency-backed stablecoins may fail.
- He warned today that some legally backed stablecoins, such as Tether, are not fully backed or backed by risky assets.
- However, he also noted that stablecoins that are fully backed by cash are less vulnerable to this problem.
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International Monetary Fund[IMF]Tobias Adrian, director of monetary and capital markets for the US, has warned that if some stablecoins are backed by riskier assets, they could fail.
IMF exec warns of stablecoin failures
An IMF director warned today that some stablecoins could fail.
Tobias Adrian warned that the sell-off or “run” of crypto assets, including stablecoins, could continue.
He added that algorithmic stablecoins such as TeraUSD, which collapsed in May, have been hit hardest by the sell-off.
However, Adrian also cautioned that some fiat-backed stablecoins could also experience similar problems. Those stablecoins are particularly vulnerable to running if they are not backed one-to-one by fiat currency, he added.
He added that these stablecoins are “backed by some risky assets” and “not fully backed by assets such as cash.”
His remarks refer to Tether’s USDT stablecoin, which has consistently been criticized for its lack of transparency around its reserves. In fact, the IMF director’s remarks were published on the same day that Tether denied rumors of exposure to Chinese commercial paper.
Despite his concerns, Adrian said some stablecoins are backed entirely by cash and are less vulnerable to runs. He did not specify specifically which stablecoins fall into that category.
Adrian and the IMF noted that the effects of the failed cryptocurrencies have not spread to mainstream finance. He added that banks are not exposed to hidden assets through cryptocurrency the way they were exposed to “shadow banks” during the 2008 financial crisis.
While they may have little impact on mainstream markets, stablecoins make up a substantial portion of the crypto market. Tether (USDT) and USD Coin (USDC) are now the largest crypto assets by volume and market cap.
USDT is the third largest cryptocurrency by market cap, with a supply of $65 billion. It was also the most traded asset in the last 24 hours, with a volume of $58 billion.
Meanwhile, USDC has a market capitalization of $55 billion and circulated $8.2 billion in volume during the past day and reported a market cap of $55 billion. It ranks fourth by both measures.
Disclosure: At the time of writing, the author of this article owns BTC, ETH and other cryptocurrencies.