Stablecoins wend wobbly way into the unknown -Breaking
© Reuters. In this illustration, taken May 12, 2022, a smartphone with the Tether logo appears on the U.S. dollar. REUTERS/Dado Ruvic/Illustration
Medha Singh and Lisa Pauline Mattackal, Alun John
(Reuters) – Stablecoins are the safer and more enlightened cousins to crypto. However, they seem distinctly unreliable.
USDC, along with others, lost their precious pegs to US Dollar last week in market turmoil that shaken faith in the coins designed to avoid crypto volatility. Is this an isolated incident or do they feel like they are losing their souls?
According to Coinmarketcap data, major stablecoins fluctuated between $0.95 to $1.02 last Wednesday, after maintaining their peg within one cent in 2022.
This is not their first wobble.
Tether, as well as USDC, are the biggest cryptocurrencies. In previous years they have been less prominently reported for experiencing volatility. Tether rose to $1.01 per year in 2021 while USDC fell to 97 cents by 2020.
According to a report by, the last week of volatility was still the highest in the history this cryptocurrency class. Morgan Stanley (NYSE:).
Hagen Rooke from Reed Smith, a partner in financial regulation in Singapore, stated that stablecoins will be the closest crypto currency to a systemically significant asset. Any impact on one or more stablecoins’ value is likely to affect the entire system.
As things stand, stabilitycoins have been very loosely regulated. However, if we look at the way a centralised stablecoin operates, you will see that it functions almost exactly like a bank deposit.
To boost confidence and move funds from cryptocurrencies to regular cash, stablecoins can be pegged to mainstream assets like the dollar.
While the internet is changing how we do business, it is still a financial system that is still based on paper and is always online. You need a stablecoin in order to have the money that moves at the pace of the economy and the fastest part of it,” Chad Cascarilla CEO of Paxos.
Market turmoil ensued last week from the collapse of TerraUSD. This was an anomaly because TerraUSD’s peg to USD was meant to be kept by an algorithmically controlled mechanism and not by dollars or other assets as it is with stablecoins.
Research from Kraken shows that TerraUSD’s problems contributed to a decline in cryptocurrency markets. According to Kraken, TerraUSD lost over $357Billion or 21.7% digital asset market capitalization week-on–week.
But there are likely to be some winners and losers in this upheaval.
According to Coinmarketcap, Tether’s market price has fallen to $75.6 Billion from $83B last Monday. This was before the dollar decoupling. USDC, however, has increased to $51 Billion from $48 billion.
Marcus Sotiriou from GlobalBlock, an analyst based in the UK, stated that USDC has more trust because institutions like BlackRock (NYSE) have USDC reserves.
Rooke, along with others, sees more regulation.
“Stablecoins are low-hanging fruit, and I think we’re going to see some policy for them,” said Michelle Bond, CEO of the Association for Digital Asset Markets.
There are many issues. What are the permitted reserves? A stablecoin can only be issued by authorized persons. What audits should be done on the issuer and reserved? Which disclosures should be made to the consumers?