Federal Reserve Official Calls Tether A ‘Challenge’ To Financial Stability

Eric Rosengren, a senior official in the U.S. Federal Reserve identified Tether’s stablecoin, USDT, as a risk to the stability of the current monetary system.

According to Rosengren, Tether poses a perceived “challenge” to financial stability, and has been listed in a watchlist by the U.S. central bank. The listing of the USDT stablecoin is aimed at identifying “new disruptors” to short-term credit markets, a key sector for the U.S. monetary system. Rosengren currently serves as president of the Federal Reserve Bank of Boston. 

“I do think we need to think more broadly about what could disrupt short term credit markets over time, and certainly stablecoins are one element,” Rosengren stated. “I do worry that the stablecoin market that is currently, [pretty] much unregulated as it grows and becomes a more important sector of our economy, that we need to take seriously what happens when people run from these [types] of instruments very quickly.” the official explains. 

A graph from crypto analyst Mr. Whale’s CryptoWhale blog shows that the Federal Reserve identifies three major challenges to financial stability. 

0*IiJrOKnzV7v15oQQ Crypto

Rosengren claims that Tether and other stablecoins appeared to be “a portfolio of a prime money market fund but maybe riskier.” Rosengren also observes that Tether has “a number of assets that, during the pandemic, the spread got quite wide on those assets.”

Tether CTO Paolo Ardoino says that the comments from a federal official like Rosengren reflect the growing importance of stablecoins, as well as the exponential growth of the crypto and blockchain space itself.

“It is remarkable that the growing market share of such new financial innovations is being recognized by the likes of the Boston Fed,” Ardoino said. 

Ardoino further explains that Tether’s USDT was a more established cryptocurrency, much unlike the “extremely risky” experimental projects involving algorithmic stablecoins that are launched in the decentralized finance sector.

“However, it is also an important moment to educate consumers about the difference between stablecoins such as Tether and the various experiments that are constantly taking place in decentralized finance. It is always recommended that investors spend time researching these projects. Opportunities with outsized APYs are extremely risky. Nascent monetary experiments such as algorithmic stablecoins should not be classified in the same category as USDT. Doing so only demonstrates a lack of understanding on the ground floor of the cryptocurrency financial system.” explains Ardoino.

Tether’s USDT remains as a critical cornerstone of the crypto and blockchain industry, despite the negative perception from government agencies such as the Federal Reserve. To date, it is still the largest stablecoin based on market capitalization, valued at $62 billion based on data from CoinMarketCap.

Tether’s backing for its one to one correspondence with fiat currencies such as the U.S. dollar has been the subject of scrutiny from regulatory bodies, with a recent case settled by the New York Attorney General’s Office earlier this year.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Leave a Reply

Your email address will not be published. Required fields are marked *