Federal Reserve Bank of Boston Governor called Tether’s stable coin “USDT” a risk to financial system stability.
On June 25, Boston Federal Reserve Bank of Boston Governor Eric Rosengren named tether as one of the bank’s “challenge to financial stability.” He cited USDT as an example of what he calls a “new tether” to the short-term credit market.
Three Challenges to Financial Stability
▶ ︎ Intermittent disruption to the short-term credit market
▶ ︎Money Market Mutual Fund (MMMF)
▶ ︎ Other potential alternatives to cash management
▶ ︎New destroyer (eg tether)
In an interview with Yahoo Finance that day, Rosengren gave details.
“I touched on tethers and stable coins because looking at their portfolios looks like or even more risky than a prime money market fund portfolio,” Rosengren said.
“There are many assets with very wide spreads during the pandemic,” Tether said. “Spread widening represents a plunge in the credit market, a time when the difference in returns between high-risk assets such as corporate bonds and assets considered safe, such as government bonds, widens.”
“We need to think more broadly about what can disrupt the short-term credit market over time, and stable coins are definitely one factor,” Rosengren said.
“What happens when people withdraw from such products very quickly as the now nearly unregulated stable coin market grows and becomes a more important sector in our economy? I’m worried that I need to think seriously. “
Name the tether
Wall Street veteran and long-time Bitcoin advocate Caitlin Long takes this statement as important.
“Interestingly, (FRB board member Lael) Brainard and (chairman) Powell started talking about’stable coins’, while Rosengren said’tether’. It’s named, which means it’s a step up, “said Long, founder and CEO of Avanti Financial.
“The Fed is very good at’FRB-like wording’. Choose words very carefully so that people in multiple positions involved in the problem can see their case in the Fed’s remarks.” Long pointed out. “But the Fed has taken it one step further today. It’s rarely as unambiguous as it is today.”
Mr Long continued that Bitcoiner, considering concerns about tether’s swelling, should not “make a misguided blame (against Rosengren).”
“I have defended Tether as a breakthrough technology and pointed out that the disclosure of its reserves raised more questions than the answer,” citing the breakdown of USDT’s collateral announced in May. Said Mr. Long.
Nearly half of the reserve was commercial paper, according to a breakdown released at the time, but its issuer and rating were not announced, leaving the market wondering about the liquidity and creditworthiness of its assets. ..
Tether’s general counsel, Stu Hoegner, later said that the “majority” of commercial papers came from publishers with an A-2 or higher rating, but with a specific name. Did not reveal.
Rosengren also included Tether’s asset breakdown in his presentation.
USDT plays an important role in the $ 1 trillion crypto asset market worldwide. Traders use USDT and other stable coins to quickly move dollars between exchanges to take advantage of arbitrage opportunities.
Stable coins are designed to be traded one-on-one with fiat currencies such as the US dollar, and in theory, the issuer should be able to redeem them one-on-one. However, questions about Tether’s reserves have long cast a shadow over the crypto asset market and have also been the focus of an investigation by the Attorney General of New York, which reached a settlement this year.
Despite years of smoldering doubts and speculation about Tether’s financial situation, USDT has been trading for almost $ 1 since its inception, as was the morning of June 26 (Coordinated Universal Time).
USDT also remains by far the top market capitalization among stable coins, despite the emergence of controversial, unprecedented competitors.
Powell said last month that he would release a deliberative document outlining the Fed’s view of digital payments, including the risks and benefits of the Central Bank Digital Currency (CBDC), this summer. At this time, the chair mentioned a little about stable coins rather than by name.
Importance of distinction within stable coins
Paolo Ardoino, Chief Technology Officer of Tether, said Rosengren’s comments are a testament to the growing importance of stable coins and other innovations in the crypto asset world, but like Tether. He said it was important to distinguish between established stable coins and “very risky” experimental ones such as algorithm stable coins in decentralized finance (DeFi).
“It’s great that the market share of such new financial innovations is being recognized by something like the Federal Reserve Bank of Boston,” Ardoino said.
“But it’s also important to educate consumers about the differences between stable coins like tether and the various experiments that are constantly occurring in decentralized finance. Investors are always these. It is recommended to research the projects of. Those with extraordinarily high APY (annual yield) are extremely risky. Emerging currency experiments such as algorithm stable coins fall into the same category as USDT. It shouldn’t. Doing so only shows that the foundations of the crypto asset financial system are not understood. “
Interestingly, Rosengren suggested that the Fed is also looking at the lesser-known stable coins.
“Last week there was a stable coin that faced financial difficulties,” Rosengren said in an interview with Yahoo Finance. It seems that it was pointing to the iron finance token “TITAN”, which had almost zero value in mid-June.
｜ Translation / Editing: Akiko Yamaguchi, Shigeru Sato
｜ Image: Shutterstock
｜ Original: US Fed Official Calls Tether a’Challenge’ to Financial Stability