The President of the U.S. Federal Reserve Bank of Boston, Eric Rosengren included that USDT stablecoin of Tether is a risk to the stability of the financial system.
In a slide presentation on 25th June, Eric Rosengren, the President of the Federal Reserve Bank of Boston, listed Tether among the “financial stability challenges” and that the U.S. central bank is keeping an eye over it.
At the same time, in an interview with Yahoo Finance, the U.S. fed official elaborated that the stablecoins are the “new disruptors” to short-term credit markets while expressing concerns over the cryptocurrency pegged to the U.S. dollar.:
“The reason I talked about tether and stable coins is if you look at their portfolio, it basically looks like a portfolio of a prime money market fund but maybe riskier.”
The U.S. Fed appears to be concerned over stablecoins in response to its growing popularity and over time could poentially disrupt the short term credit market:
“But 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. And I think that's an area of financial stability we need to pay more attention to.”
With the unregulated stablecoin market, the fed official highlighted on stablecoin's potential disruption to the credit market:
“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. I think a future financial stability problem could be occurring if we don't start thinking carefully about what happens to things like stablecoins next time we have a bad market difficulty.”
USDT plays a key role in being majority of the global cryptocurrency market. While there are many stablecoins in the market, Tether is considered the most popular to date. Traders mostly use it to convert funds between exchanges to take advantage of arbitrage opportunities.
Stablecoins are cryptocurrencies that are pegged against an existing fiat currency like the USD, including gold and silver. They have a fixed value as their daily fluctuation is negligible since it's tied to traditional assets.