US financial regulators have lashed out at stablecoins, particularly at tether (USDT), the world's third-biggest digital coin. The Federal Reserve has raised concerns over the cryptocurrency, calling it a potential financial stability risk.
"The reason I talked about tether and stablecoins is if you look at their portfolio, it basically looks like a portfolio of a prime money market fund but maybe riskier," Boston Federal Reserve Bank President Eric Rosengren said, adding that tether "has a number of assets that, during the pandemic, the spread got quite wide on those assets". Spread widening refers to an increase in the yield gap between risky assets, such as corporate bonds, and safer ones, such as government bonds, the official clarified.
According to Rosengren, the stablecoin market has become one of the most important sectors of the economy, but it is still unregulated. He believes that stablecoins are one of the elements that "could disrupt short-term credit markets over time". "We need to take seriously what happens when people run from these [types] of instruments very quickly," the official explained.
Stablecoins are crypto assets offering price stability and volatility-resistant steady valuations. These coins can achieve extremely low volatility as they are tied to real-world assets, including fiat currencies, gold, SDRs, digital currencies, or baskets of cryptocurrencies.
