The U.S. Treasury Secretary Janet Yellen said on Thursday that stablecoins pose no systemic risk as their market is still too small to affect the financial system.
During a hearing before the House Financial Services Committee, Rep. Jim Himes pressed Yellen on where the systemic risk would truly begin. Considering two trillion in market cap, Himes stated he didn’t think the space had broken the threshold.
He also said that the $2 trillion figure was now much lower in light of the recent crypto market meltdown. Yellen agreed with Himes’ proposition that a $2 trillion market cap wasn’t sufficient to trigger a systemic risk designation. However, Yellen declined to say at what level, say $5 trillion or $6 trillion – the designation would apply.
She also argued that the President’s Working Group’s concerns about runs on stablecoins aren’t unfounded considering the recent events. Recently, Terra crashed over 90% due to FUD spread about UST de-pegging.
Moreover, she pointed out that stablecoins aren’t a real threat to financial stability but they are growing very rapidly and they present the same kinds of risks that we have known for centuries associated with bank runs.
Yellen also urged for stablecoin regulation by the end of the year citing the latest TerraUSD (UST) crisis in the market. She noted that UST which is supposed to be pegged to $1 but is currently trading around 48 cents had “broken the buck”.
To top it up, Tether, the largest stablecoin, had briefly done the same on Thursday morning, dipping as low as 95 cents but is currently back trading at $1.
