Researchers Gordon Liao and John Calamichael re-evaluate the current stablecoin ecosystem and its impact on the central bank balance sheet. They identify which are the potential threats to the stability of the Federal Reserve’s monetary policy. It is found that Dolpegg’s stablecoin has “safe asset quality” compared to any other crypto assets.
Its price rose even during the recent market crash, resulting in more issuance. As the price of cryptocurrencies like Bitcoin goes down, traders demand the security of Stablecoin. The report states that Stablecoins could act as a shelter for digital safes in the event of a market crisis.According to researchers, Tether, the largest stablecoin, has historically avoided providing a full audit. As it has two layers: stablecoin narrow banking, where physical cash is tokenized and backed by the central bank’s full reserves, and stablecoin is backed by deposits held by issuers in commercial banks. Researchers have found that a two-tier system poses less risk to US financial stability.
A narrow banking approach guarantees that stablecoin pegs will not change. But financial difficulties endanger the system as many people move their money to secure stablecoin from commercial bank deposits. It puts the system at risk. As for the future, the Fed paper noted that stablecoins could see further use cases outside of trading. “Looking forward, stablecoins may see further growth through their facilitation of more inclusive payments and financial systems” as per the report.
