In a speech delivered last Friday, Boston Federal Reserve President Eric Rosengren pointed a finger at top stablecoin Tether as a looming risk for the economy.
Tether, or USDT, is the leading stablecoin in the crypto-ecosystem. Used by traders to move in and out of crypto trades, Tether currently holds a $62 billion market cap – following only Bitcoin and Ethereum. Tether is tied to the dollar and dollar-like assets and seeks to hold parity with the reserve currency.
According to an interview by Yahoo, Rosengren had this to say:
“The reason I talked about tether and stablecoins is if you look at their portfolio, it basically looks like a portfolio of a prime money market fund but may be riskier. We actually had a stablecoin that ran into financial difficulties last week. Tether, as you highlighted, has a number of assets that, during the pandemic, the spread got quite wide on those assets. The Fed intervened in order to make sure that short-term credit markets continued to operate. And the reason we should be a bit concerned about stablecoins is that it’s growing very rapidly so there’s exponential growth in stablecoins. The prime money market funds have been slowly going down as people have looked for a less risky way to hold their transactions accounts and many of them have moved to government money market funds. But I do think we need to think more broadly about what could disrupt short-term credit markets over time, and certainly, stablecoins are one element. I think there are other investment products as well that have the characteristic that, if we have a big shock in financial markets, people tend to move out of those areas quite quickly. And I think that’s an area of financial stability we need to pay more attention to.”
Tether has received criticism in the past regarding its claims that it holds an equal amount of dollars versus its value. According to a presentation by the Fed, about half of its holdings are in commercial paper. Other holdings include secured loans, fiduciary deposits, and more.
The Fed presentation is available below.