The financial stability risks of stablecoinsAmong the more interesting and potentially impactful developments of explosive growth in cryptocurrency markets has been the advent and broadening acceptance of stablecoins. As we have noted in prior work, these tokens form the backbone of offshore trading activity, representing the bulk of turnover in most pairs. Though the market has diversified a bit and has occasionally tilted slightly more towards fiat USD under stress, as a general matter this remains very much the case. The associated inflows have helped the stablecoin market to grow rapidly—though it has slowed some recently, the largest such tokens are now well above $100bn in total market value (Exhibit 1). With that growth, regulatory focus on this market has likely shifted from consumer protection to financial stability, including a recent meeting of the Presidential Working Group and recent comments from Boston Federal Reserve President Rosengren.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
