The Federal Reserve Banks of Boston and New York revealed a workers report on Sep. 26 evaluating stablecoins, comparable to USDT and USDC, to cash market funds. Key findings within the report embody the commentary that stablecoins and cash market funds comply with related patterns throughout runs and that stablecoins may inject instability into the broader monetary system.
The report, titled “Runs and Flights to Security: Are Stablecoins the New Cash Market Funds?” features a complete comparability of investor conduct throughout the stablecoin runs of 2022 and 2023 to investor conduct throughout the cash market fund runs of 2008 and 2020.
Per the publication:
“Our findings present that stablecoins are weak to runs in periods of broad crypto market dislocation in addition to idiosyncratic stress occasions. Ought to stablecoins proceed to develop and develop into extra interconnected with key monetary markets, comparable to short-term funding markets, they may develop into a supply of economic instability for the broader monetary system.”
The researchers additionally observe that stablecoins seem to have a discrete “break-the-buck” threshold of $0.99, beneath which redemptions speed up and runs — intervals through which traders flee, doubtlessly inflicting an asset crash for remaining traders.
A break-the-buck threshold in cash market funds happens when the web asset worth of a fund drops beneath a greenback, this will result in investor shares, valued at $1.00, to dip beneath market worth and trigger traders to hunt protected harbor elsewhere.
As Cointelegraph not too long ago reported, Italy’s central financial institution can be taking measures to establish contributing components and forestall stablecoin runs. In a latest assertion, the Italian banking authority cited the 2022 Terra Luna collapse for instance that stablecoins “haven’t proved secure in any respect.”
In line with the report, Italy has additionally referred to as upon international lawmakers to kind a global regulatory physique to control cryptocurrency, stablecoins, and associated applied sciences.