Today Fitch published a research paper flagging potential short-term credit market risks if there’s a sudden liquidation of reserves that back stablecoins in response to withdrawals. And as a result, there may be pressure for legislation. Its concerns mirror those expressed by Boston Federal Reserve President Eric Rosengren last Friday.
Both Rosengren and Fitch showed the breakdown of the assets that back the largest US dollar stablecoin, Tether (market cap: $63 billion). Just 26.2% of reserves are held in cash, fiduciary deposits, reverse repos and government securities. Meanwhile, 49.6% is held in commercial paper and almost ten percent in corporate bonds.
The key point that both made is that stablecoins are growing, and the scale of commercial paper holdings may already be larger than most prime money market funds in the US and EMEA. So if there’s a run, it could disrupt the commercial paper market. The European Central Bank raised this point some time ago.
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