Market Analysis

Stablecoins Backed by “Risky Assets,” IMF Exec Warns


Tobias Adrian of the IMF says that some fiat-backed stablecoins are vulnerable to runs and sell-offs just as their algorithmic counterparts are.

Key Takeaways

  • Tobias Adrian, a director at the International Money Fund, has warned that certain fiat-backed stablecoins could fail.
  • He pointed out that some fiat-backed stablecoins, such as Tether, are not fully backed or are backed by risky assets.
  • However, he also noted that stablecoins that are fully backed by cash are less vulnerable to this problem.

Tobias Adrian, Director of Monetary and Capital Markets for the International Money Fund, has warned that some stablecoins could fail if they are backed by “risky assets.”

IMF Exec Warns of Stablecoin Failures

An IMF director has warned that some stablecoins could fail.

Speaking to Yahoo! Finance, the financial institution’s Director of Monetary and Capital Markets Tobias Adrian warned that there could be continued sell-offs or “runs” of cryptocurrency assets including stablecoins.

He noted that algorithmic stablecoins such as TerraUSD, which collapsed in May, have been hit hardest by sell-offs.

However, Adrian also warned that certain fiat-backed stablecoins could also experience the same problems. He said that those stablecoins are particularly vulnerable to runs if they are not backed one-to-one by fiat currency.

He added that those stablecoins are “backed by somewhat risky assets” and are “not fully backed by cash-like assets.”

His comments refer to Tether’s USDT stablecoin, which has consistently been criticized for its lack of transparency around its reserves. In fact, the IMF director’s comments were published on the same day that Tether issued a fresh denial that it has exposure to Chinese commercial paper.

Despite his concerns, Adrian noted that some stablecoins are fully backed by cash and are less vulnerable to bank run events. He did not specifically name which stablecoins fall in that category.

Adrian and the IMF noted that the effects of failed cryptocurrencies have not spilled over into mainstream finance. They noted that banks are not exposed to hidden assets through cryptocurrency in the same way that they were exposed to “shadow banks” during the 2008 financial crisis.

Though stablecoins may have little impact on the mainstream markets, they make up a substantial part of the crypto market. Tether (USDT) and USD Coin (USDC) now are among the largest crypto assets by volume and market cap.

USDT is the third largest cryptocurrency by market cap, boasting a supply of $65 billion. It was also the most traded asset over the past 24 hours, with a volume of $58 billion.

USDC, meanwhile, has a market cap of $55 billion and traded $8.2 billion in volume over the past day. It ranks fourth by both measures.

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.

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