Potential Liquidity Shock In the crypto market, a stablecoin like tether – the value of which is pegged to the U.S. dollar – is the equivalent of a money market fund and investors should be concerned about the possibility of its value also falling below $1, according to Massad.
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Massad also referred to CoinDesk’s description of tether as “a key piece of the plumbing for the roughly $2 trillion global market,” given that traders “use it to quickly transfer dollar value between exchanges to capture arbitrage opportunities when a bank wire is unavailable.” A liquidity decline would cause crypto prices to fall, squeezing those with leveraged positions.
The question then is whether Tether would be able to withstand a sudden wave of withdrawals and what its effect would be on the wider crypto ecosystem. A JPMorgan research note recently stated that a loss in confidence in tether “would likely generate a severe liquidity shock” to bitcoin markets, given that 50%-60% of all BTC trades are for USDT. Tether recently disclosed that only around 10% of its assets were in cash, reverse repo notes and Treasury bills as of March 31. With the majority of tether’s backing not being in the form of fiat currency, Massad said holders of USDT are “on notice that they may have trouble getting back $1 for each token.”
Regulation of stablecoins must be strengthened, according to Massad. He referred to a bill introduced in Congress in December that would require stablecoin issuers to follow the same regulations and conform to the same standards as banks. Related: Black Wall Street 3.0
Source finance.yahoo.com Related Stories “Whether it moves forward is anyone’s guess,” Massad’s piece concluded.
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