If a stablecoin collapses, the US bond market and the economy will suffer

  • In 2022, the crypto industry saw almost $ 1.4 trillion lost down.
  • Stablecoin shares a $145 billion market cap.
  • The crash will affect the non-crypto market because of its embeddedness.

All financial instruments have specific implications, and investors are advised to take promises with a grain of salt. 2022 has seen an almost $ 1.4 trillion drop in the crypto market, one of the specific examples is that if a large stablecoin fails, it may affect the US debt market.

The stablecoin market is expected to be around $145 billion, as it is integrated one-to-one with fiat currencies, making them the backbone of the crypto economy. This feature allows people to easily trade in different information and symbols without converting their fiat.

This indicates that these stablecoins are backed by real assets such as fiat money or bonds. Government securities are returned. Although there are no signs on the horizon of the collapse of the stablecoin, a professor of economics at Cornell University, Eswar Prasad, expressed some concerns about the potential impact to the traditional financial market.

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Suppose many users convert their stablecoins to fiat, then the issuer sells their reserve assets, i.e. dumping There are many US Treasurys.

In his speech to the media at a meeting in St. Mortiz, Switzerland, the economist said that if people lose confidence in stablecoins, they will increase the money supply, which means more pressure on the person who gives it. the sale of their holdings of Treasury bills.

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Even if the market is volatile, such a crisis can cause ripples in the securities market. Considering the importance of the Treasury securities market in the wider financial system, this is a serious concern.

Suppose a similar thing also happens, when the sentiment of the bond market is sensitive; it can create increased risk because more stocks are sold in Treasurys. According to investors, cryptocurrencies are speculative financial assets without a clear comparative example to support them.

In May 2022, the US Federal Reserve warned that “stablecoins remain easy to run, and many of the debt and bank loans continue to be affected by financial risks.”

A well-known business investor and crypto industry veteran Bill Tai, do not think that a major stablecoin will collapse anytime soon. But, they are being studied, and they are welcome. In another interview, Tai said:

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“I think that just like our traditional financial industry, where people were caught off guard by hidden disease in the low market during the financial crisis, there can be a pocket or two of the use on some asset that is intended to support the stablecoin,”

Enjoy the opportunity to jump stablecoin and surprises like the subprime mortgage crisis, which began in 2007 and plunged the whole world into recession.

Now, as Jeff Bezos speculated that the recession may come, it is a major crisis in the common currency or the economy that cannot be handled.

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