In Cointelegraph’s latest video report, we discussed the systemic risks that stablecoins pose to the stability of the crypto market and traditional markets.
Stablecoins have become the backbone of the crypto ecosystem because they play a vital role in the operation of crypto transactions and decentralized finance. Since the beginning of 2021, their market value has increased fourfold.
But the lack of transparency in the reserves supporting stablecoins makes many people wonder whether their growth is really sustainable. Recent disclosures of major stablecoins show that only part of their reserves consists of cash, and most of them are kept in the form of riskier assets such as commercial paper.
Some analysts worry that in a market downturn, stablecoin issuers may find it difficult to meet customer redemption requirements. This may trigger the collapse of investors’ trust in these stablecoins, and have serious consequences for the entire crypto market.
Frances Coppola, a financial commentator and stablecoin commentator, said: “As long as everyone thinks it’s good, and they use it for their own transactions, and no one tries to cash it out, then the whole thing is Will be established.”
Governments around the world are also worried that the collapse of stablecoins may spread to traditional financial markets and call for stronger supervision.
How serious are the risks posed by stablecoins? What might happen after the major stablecoins collapse? What measures can be taken to reduce the risk?