Tuesday, March 21, 2023
[email protected]
 Fintech Zoom
  • MARKETS
    • Trading
    • Stock Futures
    • Exchange Traded Fund (ETF)
    • Best Stocks To Buy Now
    • Penny Stocks
    • Forex Market
    • Bonds & Rates
    • Stock Market Guides
    • Commodities
      • Brent Crude Oil Price
      • WTI Crude Oil Price
    • Breaking Stock Market News
    • Reviews in Stock Market
    • Asian Markets
    • European Markets
    • US Markets
  • WORLD INDICES
    • DAX PERFORMANCE-INDEX
    • Russel 2000 (RUT)
    • STOXX Europe 600 (SXXP)
    • Euro Stoxx 50
    • CAC 40 Index (FCHI)
    • FTSE 100 Index
    • Nikkei 225 Index
    • HSI – Hang Seng Index
    • NSE Nifty 50 Index
    • NASDAQ Composite Index
    • Dow Jones (INDEXDJX: .DJI)
    • S&P 500 Index
    • ASX – Australian
    • Shanghai Index (SSE)
  • BUSINESS
  • CRYPTO
    • Metaverse
    • Tokens
    • Crypto Reviews
    • NFT : Non-Fungible Tokens
    • Stablecoins
    • Blockchain
    • Ethereum
    • Buy Bitcoin
    • Best Crypto
    • Bitcoin
    • Altcoins
  • MONEY
    • Insurance
    • Taxes
    • Mortgages
    • Loans
    • Personal Finances
    • Credit Cards
    • Interest Rates
  • BANKING
    • Banks Near Me
    • Payments
    • ATM Near me
    • Best Banks
    • Banks Guides
    • Transfer Money Online
    • Mobile Banking
    • Digital Bank
  • TECH
    • Social Media
    • Login
    • Error Pages
    • Is It Down?
    • Download
    • Settings
  • LUXURY
    • Luxury Food & Drink
    • Luxury Cars
    • Luxury Style
    • Luxury Motors
    • Luxury Travel
    • Luxury Tech
  • LIFESTYLE
    • Travel
    • Real Estate
    • Entertainment
    • Health
    • Cars
    • Famous People
    • Near Me
    • Life
    • Weather Tomorrow
  • ABOUT US
    • Why Fintech Zoom?
    • What is FintechZoom?
    • Advertise with Us
    • Careers in FintechZoom
    • Fintech Zoom Logo
    • FintechZoom PRO
No Result
View All Result
  • MARKETS
    • Trading
    • Stock Futures
    • Exchange Traded Fund (ETF)
    • Best Stocks To Buy Now
    • Penny Stocks
    • Forex Market
    • Bonds & Rates
    • Stock Market Guides
    • Commodities
      • Brent Crude Oil Price
      • WTI Crude Oil Price
    • Breaking Stock Market News
    • Reviews in Stock Market
    • Asian Markets
    • European Markets
    • US Markets
  • WORLD INDICES
    • DAX PERFORMANCE-INDEX
    • Russel 2000 (RUT)
    • STOXX Europe 600 (SXXP)
    • Euro Stoxx 50
    • CAC 40 Index (FCHI)
    • FTSE 100 Index
    • Nikkei 225 Index
    • HSI – Hang Seng Index
    • NSE Nifty 50 Index
    • NASDAQ Composite Index
    • Dow Jones (INDEXDJX: .DJI)
    • S&P 500 Index
    • ASX – Australian
    • Shanghai Index (SSE)
  • BUSINESS
  • CRYPTO
    • Metaverse
    • Tokens
    • Crypto Reviews
    • NFT : Non-Fungible Tokens
    • Stablecoins
    • Blockchain
    • Ethereum
    • Buy Bitcoin
    • Best Crypto
    • Bitcoin
    • Altcoins
  • MONEY
    • Insurance
    • Taxes
    • Mortgages
    • Loans
    • Personal Finances
    • Credit Cards
    • Interest Rates
  • BANKING
    • Banks Near Me
    • Payments
    • ATM Near me
    • Best Banks
    • Banks Guides
    • Transfer Money Online
    • Mobile Banking
    • Digital Bank
  • TECH
    • Social Media
    • Login
    • Error Pages
    • Is It Down?
    • Download
    • Settings
  • LUXURY
    • Luxury Food & Drink
    • Luxury Cars
    • Luxury Style
    • Luxury Motors
    • Luxury Travel
    • Luxury Tech
  • LIFESTYLE
    • Travel
    • Real Estate
    • Entertainment
    • Health
    • Cars
    • Famous People
    • Near Me
    • Life
    • Weather Tomorrow
  • ABOUT US
    • Why Fintech Zoom?
    • What is FintechZoom?
    • Advertise with Us
    • Careers in FintechZoom
    • Fintech Zoom Logo
    • FintechZoom PRO
No Result
View All Result
FintechZoom
No Result
View All Result

Risks of Stablecoins Highlighted as Terra’s Peg Breaks

James Albert by James Albert
May 12, 2022
in Special, Stablecoins
0

Home » Risks of Stablecoins Highlighted as Terra’s Peg Breaks

RelatedPosts on FintechZoom

What are Stablecoins and How Can They Benefit You?

What Crypto to Buy Now: The Ultimate Guide to Investing in Cryptocurrency

Understanding Market Cap Coin: An Essential Guide

What is Defi, and Why it Might Save Us from the Next Financial Crisis

Leading Stablecoin, Tether Replaces Commercial Paper Holdings With US Treasury Bills

Not all Stablecoins are stable, says Crypto Expert

Fitch Ratings-Hong Kong/London-12 May 2022: The failure of the algorithmic peg mechanism fixing the price of Terra’s USD stablecoin (UST) and the umooring of Tether from its USD peg highlight the fragile nature of private stablecoins, and will accelerate calls for regulation, says Fitch Ratings.

We have previously indicated that algorithmic stablecoins have struggled to win regulatory acceptance, as they can face particular risks in maintaining a stable value. In the case of UST, the backing entity’s crypto reserve was not sufficiently large to serve as a source of stability when the UST’s algorithmic peg mechanism came under speculative pressure. Over 10-12 May 2022, UST consistently traded at values well below USD1. The largest stablecoin, Tether (USDT), also diverged from USD1:USDT1, though more marginally.

Link to Infogram: Terra USD (UST) Value and Trading Volumes

We expect recent developments to lead to increased calls for regulation of stablecoins. The US Treasury Secretary, Janet Yellen, has already said it shows the importance of having an appropriate regulatory framework for stablecoins. The EU’s Markets in Crypto Assets regulation, nearing finalisation, will not permit the issuance of algorithmic stablecoins and requires bank-like regulation and reserves for systemic stablecoin issuers.

Stablecoins backed by reserve assets with clear fiat currency value face a fundamentally different set of credit issues to algorithmic stablecoins, in our view. In such cases, the stablecoin’s stability risks can be more manageable, depending on various factors, notably the safety and liquidity of the reserve assets. Other factors relevant to the credit profiles of the issuers of reserve-backed stablecoins include regulatory risk, counterparty risk (including reserve custodians), transparency over reserves and the extent to which the underlying assets are truly uncorrelated, the legal rights of stablecoin holders, and governance and operational risks.

Terra is one of the largest stablecoins, but its market value on 8 May before the pressure on its peg was only around USD18.6 billion, below that of larger stablecoins like Tether (USD83.2 billion) or USD Coin (USD48.7 billion). Investors will likely pay more scrutiny to the risks surrounding stablecoins and their reserve attestations given that UST’s problems have sparked wider crypto market volatility. It is unclear what impact this will have, but it could result in stablecoins with a lower risk profile gaining market share, or weaker investor appetite for stablecoins in aggregate.

There could be significant negative repercussions for cryptocurrencies and digital finance if investors lose confidence in stablecoins. The latter play an important role in catalysing the crypto ecosystem more broadly, by providing a stable link to fiat-currency financial markets.

The failure of Terra’s peg has sent shocks through the decentralised finance (defi) sector, with a key saving and lending protocol, Anchor, seeing massive liquidation of UST-collateralised loans and the pricing of other crypto tokens also being affected. This has led to further liquidation triggers throughout the ecosystem, for example on the AAVE protocol. Bouts of volatility will probably continue as the crypto sector digests the repercussions of the failure of the UST peg, and as US policy rate increases and equity volatility pressure high-beta assets.

Links between crypto markets and regulated financial markets remain weak. We expect this to limit the potential for crypto market volatility to spill over and cause wider financial instability. However, many regulated financial entities have have increased their exposure to cryptocurrencies, defi and other forms of digital finance in recent months, and some Fitch-rated issuers could be affected if crypto market volatility becomes severe. There is also a risk of an impact on the real economy, for example through negative wealth effects if crypto asset values fall steeply. Nonetheless, we view the risks to Fitch-rated issuers and real economic activity as being generally very low.

James Albert

James Albert

James Albert is a personal-finance analyst for FintechZoom and is based in New York. Contact: [email protected]

Related Posts

Stablecoins | FintechZoom

What are Stablecoins and How Can They Benefit You?

March 2, 2023
Crypto coins | FintechZoom

What Crypto to Buy Now: The Ultimate Guide to Investing in Cryptocurrency

February 21, 2023

Understanding Market Cap Coin: An Essential Guide

December 9, 2022

What is Defi, and Why it Might Save Us from the Next Financial Crisis

November 26, 2022

Leading Stablecoin, Tether Replaces Commercial Paper Holdings With US Treasury Bills

November 2, 2022

Not all Stablecoins are stable, says Crypto Expert

August 4, 2022

Crypto: BTC analysis shows a triangle pattern, consolidating between $29,000 and $31,000. 

May 25, 2022

Commodities: Prices for natural gas hit the highest level in over a decade in response to Russia’s war in Ukraine

May 25, 2022

Stock Market Highlight: Snapchat in a single session lost more than 43%

May 25, 2022
Next Post
a business woman who is stressed and frustrated

Big shake-up in crypto market. Panicked investors with high losses due to UST

Finland to apply for NATO membership

WTI and Brent Crude climbed +6% and 4.9% on day that Finland starts process to join NATO

Netflix Stock

Selling pressure due to raising worries that the Federal Reserve might act on the economy to curb inflation

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

  • About Us
  • Advertise
  • Careers
  • Terms and Conditions
Call us: + 1 917 9939840

© 2016-2023 FINTECH ZOOM - WORLD FINANCE

No Result
View All Result
  • MARKETS
    • Trading
    • Stock Futures
    • Exchange Traded Fund (ETF)
    • Best Stocks To Buy Now
    • Penny Stocks
    • Forex Market
    • Bonds & Rates
    • Stock Market Guides
    • Commodities
      • Brent Crude Oil Price
      • WTI Crude Oil Price
    • Breaking Stock Market News
    • Reviews in Stock Market
    • Asian Markets
    • European Markets
    • US Markets
  • WORLD INDICES
    • DAX PERFORMANCE-INDEX
    • Russel 2000 (RUT)
    • STOXX Europe 600 (SXXP)
    • Euro Stoxx 50
    • CAC 40 Index (FCHI)
    • FTSE 100 Index
    • Nikkei 225 Index
    • HSI – Hang Seng Index
    • NSE Nifty 50 Index
    • NASDAQ Composite Index
    • Dow Jones (INDEXDJX: .DJI)
    • S&P 500 Index
    • ASX – Australian
    • Shanghai Index (SSE)
  • BUSINESS
  • CRYPTO
    • Metaverse
    • Tokens
    • Crypto Reviews
    • NFT : Non-Fungible Tokens
    • Stablecoins
    • Blockchain
    • Ethereum
    • Buy Bitcoin
    • Best Crypto
    • Bitcoin
    • Altcoins
  • MONEY
    • Insurance
    • Taxes
    • Mortgages
    • Loans
    • Personal Finances
    • Credit Cards
    • Interest Rates
  • BANKING
    • Banks Near Me
    • Payments
    • ATM Near me
    • Best Banks
    • Banks Guides
    • Transfer Money Online
    • Mobile Banking
    • Digital Bank
  • TECH
    • Social Media
    • Login
    • Error Pages
    • Is It Down?
    • Download
    • Settings
  • LUXURY
    • Luxury Food & Drink
    • Luxury Cars
    • Luxury Style
    • Luxury Motors
    • Luxury Travel
    • Luxury Tech
  • LIFESTYLE
    • Travel
    • Real Estate
    • Entertainment
    • Health
    • Cars
    • Famous People
    • Near Me
    • Life
    • Weather Tomorrow
  • ABOUT US
    • Why Fintech Zoom?
    • What is FintechZoom?
    • Advertise with Us
    • Careers in FintechZoom
    • Fintech Zoom Logo
    • FintechZoom PRO

© 2016-2023 FINTECH ZOOM - WORLD FINANCE