The New York and Boston branches of the American Central Bank FED shared a report about stablecoins. The report prepared jointly by two FED branches examined the effects of stable cryptocurrencies on the economy. In their 49-page study, expert economists defined stablecoins as money-like assets due to their stable value.
Authorities made a number of statements about the negative aspects of this situation. The constant liquidity provided to the market poses risks for companies issuing stablecoins. In the report, experts touched upon the USDT and USDC events that occurred in the past period and compared these events with the 2008 crisis.
“Circle USD (USDC), which has a financial connection with Silicon Valley Bank, which went bankrupt in March, had seriously lost value during the escape, although it should have remained stable. The stablecoin, which was supposed to be fixed at $1, closed at $0.97 on March 10, 2023. The USDC value instantly dropped to around 0.80.”
FED experts commented that cryptocurrency investors are showing less tolerance. Traders started selling in a huge panic the moment the USDC price dropped to 0.99.
Stablecoin – Short-Term Finance Relationship
According to the research, stablecoins experience problems when sudden movements occur in Bitcoin and altcoin units. Experts stated that the risks will grow further in a scenario where currency-indexed tokens are integrated with short-term financial instruments.
New York FED also touched upon the collaterals of dollar-linked cryptocurrencies in the document it prepared. According to the report, some projects receive support with cash and American bonds, while others prefer riskier products such as corporate bonds. Authorities commented that the situation could be worse for issuers who use risky instruments as collateral in a possible crisis.