When America’s oldest money market fund “bankrupt” in 2008, it was a pivotal moment financial crisis. After the landmark bankruptcy of Lehman Brothers, the Reserve Junior Fund had to renege on its promise to return $1 per share to its investors. Retail investors quickly discovered that the bank-like stability promised by such funds did not imply bank-like protection. With that comes stricter rules on what money market funds can invest in.Something like existentialism might be happening The $1.3 Trillion Crypto Market.
Tether, the largest stablecoin in the crypto space, briefly broke its one-to-one link with the U.S. dollar last week. Unlike Bitcoin or other more esoteric cryptoassets, Stablecoins aim to avoid volatility, as their name suggests. They claim to be based on real-world assets and are therefore an important part of the cryptocurrency market, offering traders a safe place to store their cash between bets on the more volatile digital currencies Bet. This stability is now in question, and the entire cryptocurrency market is uneasy.
Tether fell to 95.11 cents on Thursday before recovering. It said it continued to redeem its tokens (as of Friday, its claims were worth more than $4 billion) at $1 each to those who asked.At the same time, a Smaller stablecoin competitor TerraUSD — it doesn’t even claim a safety net of actual reserves, but relies on a peg that runs algorithmically — the value collapses.
If investors in armchairs lost their shirts and some crypto bros saw their egos deflated, the reaction might just be a shrug. Not without warning.but this underestimates real economic risk From the $180 billion stablecoin market.
If Tether does have $80 billion in assets to back its 80 billion coins in circulation, that would put it among the largest hedge funds in the world with nearly half of its U.S. Treasury holdings and another quarter of corporate debt . The scale of the moves could make already strained financial markets more volatile if those assets sell off as Tether tries to stay pegged to the dollar or faces a wave of redemptions.
It doesn’t help that there have been questions about whether Tether’s assets really fully back its tokens, and related fines from two U.S. regulators. Some of the corporate bonds were issued by Chinese companies, the report showed. Even in the face of last week’s drama, the company has steadfastly refused to elaborate on how its seemingly vast reserves are managed, claiming it amounts to its “secret sauce.” Banks have found that distrust only drives them to rush out. The faith of true believers in cryptocurrencies may be severely tested.
That means politicians must stop hesitating and heed the warnings about stablecoins from central banks like the Federal Reserve, Bank of England and European Central Bank. Banks keep only a fraction of their assets as liquid reserves to back the value of deposits. In return, they are heavily regulated. Stablecoins can trigger bank-like runs, but enjoy the under-regulation of the cryptosphere. Real world rules are required.
Part of the problem is trying to define what a cryptoasset is, and therefore which body should oversee it; the definition of stablecoins is further blurred. Another problem is that countries have very different attitudes towards cryptocurrencies: some see the risk, some see the reward.Action is futile unless they act in unison, as UK regulators find when they reject Binance popular in france. But for a $180 billion global market, turf wars can be distracting. The risk of inaction is that financial stability is threatened by the next bigger volatility in stablecoins.