IMF warns of risk in stablecoins

The collapse of the stablecoin TerraUSD is one of the major reasons for the decline in the crypto market over the past few months. The International Monetary Fund (IMF) believes that the decline in equity and crypto markets may increase. Tobias Adrian, Director (Monetary and Capital Markets) of the IMF, said that in such a situation, there is more risk for stablecoins.

Tobias told Yahoo Finance, “There could be further selloff in the crypto markets. Some algorithmic stablecoins have seen huge losses and others may fail. They don’t have any assets associated with them.” However, he also said that there is little doubt about stablecoins with 100% cash linkage. Tobias said authorities should regulate exchanges and wallet providers. He told that there are about 40,000 coins available. These will be difficult to regulate but regulating exchanges and wallet providers can improve the situation.

The failure of cryptocurrencies has not affected the core finance sector, he added. Banks do not invest in hidden assets through cryptocurrencies. Stablecoins are cryptocurrencies that attempt to link their market price to a reserve asset such as gold or common currencies. These are more commonly used for digital transactions that involve converting virtual assets into real assets. USD Coin, Tether and Binance USD are some of the popular stablecoins, which are pegged to the US dollar. Stablecoin, a rapidly growing version of crypto, has emerged as a major medium of exchange. It is used to remit funds on behalf of traders.

It is easy to exchange major stablecoins for bitcoin or other cryptocurrencies. Global regulators say that stablecoins should follow the same rules as normal means of payment. IOSCO, the global body of securities regulators and the Bank for International Settlements (BIS), which is affiliated to central banks, have said that the proposals in this regard have been accepted. These proposals state that the existing rules related to the payments sector should apply for large stablecoins. This would be a major step towards equal risk, equal regulation for stablecoins.

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