Untethered
“Untethered”– a cartoon that illustrates that the systematic risk of stablecoins might not be limited to those with algorithmic pegs.
Last week saw Terra, once the 3rd largest stablecoin, lose its dollar peg, falling to $0.
Industry insiders suggest that the main reason for this is that rather than keeping reserves, the Terra coin relied on algorithms, which made it susceptible to massive withdrawals from a sister asset called Anchor.
However, the deeper problem is that stablecoins, like Tether, with reserves tied to real assets (e.g. Treasury Notes, bonds, commercial paper), are a danger to the overall economy.
According to Fitch, if Tether needed to quickly sell its holdings to support its dollar peg it could cause a ‘financial run’ that might impact the short-term credit market.
Robert Armstrong, the author of the Unhedged newsletter, wrote “stablecoins have a total market capitalization of more than $150 billion. If the pegs all break – and they could – there will be ripples well beyond crypto.”
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