November 17, 2021

Could a Run on Stablecoins Disrupt the Commercial Paper Market?

fyoStablecoins that approach a systemically important scale could come to play an important role in short-term securities markets such as commercial paper, while bringing new risks to these markets, according to a report by Fitch Ratings released on Monday.

“The [U.S.-dollar denominated] reserves that coin operators hold to at least partially back their currency can affect short-term markets, particularly as they increase in scale,” Fitch warned.

Stablecoins are cryptocurrencies that, in the attempt to offer price stability, peg their market value to a commodity’s price or a fiat currency like the U.S. dollar. The digital tokens are usually backed by reserves of dollars or securities and other assets, such as certificates of deposit or commercial paper (CP).

According to Fitch, the 10 largest stablecoins had an aggregated…

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