The month of May was disastrous for some stablecoins. Tokens such as Terra’s UST and Tethers USDT did not do what they were made for: to be stable. We are now in calmer waters, but according to the International Monetary Fund (IMF), that will only be short-lived.
Some stablecoins still a risk
That explains the director of Monetary and Capital Markets at the IMF, Tobias Adrian Yahoo. The institution still sees a lot of risk in some of these tokens. “Notably some algorithmic stablecoins [vormen een risico]and other tokens may fail as well,” Adrian stated in the interview.
“There is quite a lot of risk there, because they don’t [altijd] are covered by cash on a one-to-one basis. Instead, they are often backed by fairly risky assets.” According to Yahoo, he refers in particular to Tethers USDT, of which it is still not clear what the collateral consists of. Other tokens also still pose a risk.
The CEO is less concerned about the risk cryptocurrencies pose to the banking system. “What was worrisome in [de crisis van] 2008 was that banks had a lot of exposure to shadow banks (read: financial institutions that are not banks) where all the risk was. Banks are not that exposed to crypto at the moment.”
That means the massive declines in cryptocurrencies pose no financial risk to banks. The risk of a crypto-induced banking crisis is therefore not that great.
IMF not only gloomy about crypto
The International Monetary Fund has a bleak outlook not only for cryptocurrencies, but also for the global economy in general. Yesterday we wrote about an IMF report that still saw significant risks in global stabilityt. That should weigh on economic growth next year.
The organisation actually signals that a severe recession is on the way. That could weigh on inflation. Again, that’s not good news for crypto assets, and it also increases the risk that the more vulnerable stablecoins pose. Is a second Terra crash in the works? Let us know on Discord!