Stablecoins (tokens such as USDT, USDC, BUSD, DAI, UST, PAX and others, the value of which does not change and stays at $ 1.00) have become the backbone of the cryptocurrency ecosystem.
They play a key role in the functioning of cryptocurrency trading and in decentralized finance (DeFi). Their market capitalization has quadrupled since the beginning of 2021 and now stands at over $ 125 billion.
However, the lack of transparency around the reserves supporting stablecoins has left many analysts wondering if their growth is actually sustainable.
Recent disclosures of major stablecoins have shown that only a fraction of their reserves are made up of cash, while a significant amount is held in riskier assets such as commercial papers (stocks of publicly traded companies, bonds).
Some analysts fear that in the event of a market downturn, stablecoin issuers may find it difficult to meet redemption requests from their clients. This could potentially cause a collapse in investor confidence in these stablecoins, with serious consequences for the entire cryptocurrency market.
“It takes as long as everyone believes everything is fine and everyone uses stablecoins for their own transactions – and no one ever tries to withdraw money,” said Frances Coppola, a financial commentator and stablecoin critic.
Governments around the world also fear that the stablecoin crash could spill over into traditional financial markets and are calling for more rigorous regulations.
10-09-2021, Mr Advice TEAM