In Brief:
- The leading U.S rating organization warns stablecoin’s growth and regulation could create a negative impact on the commercial paper
- Tether holds 49% reserves in the certificate of deposits and commercial paper, which reduces the flow of commercial paper
Currently, the Stablecoin market is in the hype and expanded in a surprising manner in comparison to last year. Amid the growth and regulation, Fitch Ratings warned of stablecoin’s possible impact on the short-term securities market.
Fitch Rating is the U.S.-based leading credit rating agency and one of the three nationally recognized statistical rating organizations (NRSRO) designated by the Securities and Exchange Commission (SEC).
In the report, Fitch stated that stablecoins compels its operators to hold more reserves in safe and highly liquid assets, which could reduce the use of commercial paper. Although, This will increase the influence of stablecoin on the short-dated government market such as Treasury bills.
Stablecoins such as Tether (USDT-USD) and Carpe Diem are pegged to a fiat currency, in other words to holds a 1:1 ratio with fiat currency. In the current year, Stablecoins shows rapid growth in securities holdings.
“Stablecoin-related turbulence could both affect the CP [commercial paper] market itself and transmit shocks to other market participants. Risks could be aggravated if the infrastructure and partners used by stablecoin operators to engage with traditional markets lack a record in the smooth handling of transactions during periods of market stress or volatility,” said Fitch
“Growth in stablecoins’ market value has been volatile and their reserve asset allocations may change, making forecasting challenging,” and “stablecoin-related turbulence could both affect the CP market itself and transmit shocks to other market participants,” Fitch warns.
As per the report of June-2021, Tether holds 49% reserves in certificates of deposits and commercial paper. In the second quarter, Tether’s annual growth declined to 45%, But it’s still 230% up from the beginning of the year 2021 to Oct.15 and marked $68.6B value.
Earlier in June, Boston’s Federal president Eric Rosengren warned of the possible impact of Tether and other stablecoins by calling them “Financial stability challenges”. After a month, the Secretary of Treasury Department Janet Yellen had announced a plan to call a meeting of regulators to discuss stablecoin’s risk and benefits.
Last month, the Federal department chairman Jerome Powell had stated that he has no intention to ban cryptocurrency, although Stablecoin should control and need more oversight to avoid the risk of investors.
