Terra’s steep fall has revitalized crypto skeptics. On May 10, amid the collapse of Terra, Treasury Secretary Janet Yellen argued before the Senate Banking Committee that stablecoins “create operational risks that could threaten financial stability, risks related to the payment system and its integrity.” Of course, not every token that calls itself “stablecoin” is stable, but Ms. Yellen is wrong in believing that stablecoins pose a systemic risk to financial stability.
A true stablecoin is a dollar-like token backed by at least $1 worth of assets. The most prominent stablecoins, Tethers USDT and Circles USDC, account for $72.5 billion and $54 billion in circulation, respectively. Opportunistic regulators and politicians, most notably Gary Gensler of the Securities and Exchange Commission and Senator Elizabeth Warren, call stablecoins “wild banks” and argue that they are vulnerable to runs.
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