Stablecoin growth is “exponential”, deserves “attention”
While a presentation yesterday by Boston Federal Reserve Chairman Eric Rosengren scared some members of cryptoTwitter about regulation and supervision, the central bank might just be thinking about the future.
In a presentation titled “Financial Stability,” Rosengren identified Tether stablecoin by name as one of three “Financial Stability Challenges”. The challenges included risks to the housing market, the need for emergency lending facilities in times of crisis, and “periodic disruptions in short-term credit markets”, where Tether was seen as a possible disruptor.
A follow-up slide noted that stablecoins are growing rapidly in market capitalization and are now around 20% of the size of total assets under management of blue chip money market mutual funds:
“The reason we should be a little concerned about stablecoin is that it is growing very quickly, so there is exponential growth in stablecoin,” Rosengren said in an interview with Yahoo Finance. “[…] I think we need to think more broadly about what might disrupt short-term credit markets over time, and stablecoins are definitely a part of it. “
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As Avanti Financial Group CEO Caitlin Long sounded the alarm that this could be a harbinger of the Federal Reserve laying the groundwork for a regulatory framework for stable coins, Rosengren finally appeared to embrace a more tempered point of view.
3 / And here is part 2.
Again, each USD is ultimately cleared by the Fed, which means the Fed has jurisdiction over the USD. #stablecoins. It is important that the Fed say this. Caveat emptor, folks. pic.twitter.com/iWkO7AoUpn
– Caitlin Long (@CaitlinLong_) June 25, 2021
Rosengren noted that the rise of stablecoins is not in itself a threat to credit markets, but rather should be assessed in terms of the risks they could pose if they continue to grow as a segment of credit markets. , and to what extent the Fed could support markets dominated by stablecoins:
“I’m concerned that in the stablecoins market which is currently, pretty much unregulated as it grows and becomes a bigger sector of our economy, that we need to take seriously what happens when people are very fleeing. quickly this type of instruments. And just like money market funds caused a bad disruption in credit markets, I think a future financial stability problem could arise if we don’t start to think carefully about what will happen to things like stablecoins. next time we have a bad market trouble.
Rosengren also noted that “We actually had a stablecoin that ran into financial difficulty last week,” but declined to name it. Additionally, despite being questioned twice by anchor Brian Cheung, Rosengren declined to say whether the Fed would step in to “backstop” Tether or other stablecoins if ever they posed a risk to the markets. wider credit.
He noted, however, that support from Tether and support from other stablecoins “essentially looks like a portfolio of a blue chip money market fund but perhaps riskier”, and as such, the liquidity injected into money markets in times of crisis would also strengthen Tether.
Tether first disclosed its entire reserve balance sheet in March, and in February settled a lawsuit with the NYAG that they had incorrectly reported the degree to which stablecoin was backed by fiat.