Fitch Ratings, a credit rating agency and one of the “Big Three” credit rating agencies (along with Moody’s and Standard and Poor’s S&P), has warned that Stablecoins may have an impact on the securities markets.
According to Fitch Ratings, Stablecoins that approach a systemically important scale could come to play an important role in short-term securities markets, such as commercial paper, while introducing new risks to these markets.
Furthermore, the agency believes that the extent to which stablecoins impact securities will be heavily influenced by the evolution of regulations affecting the asset class.
Stablecoins and Commercial Paper
According to Fitch Ratings, ‘stablecoin-related turbulence’ could disrupt the commercial paper market and ‘transmit shocks to other market participants.’
Tether, the world’s largest and most well-known stablecoin, is backed almost entirely by commercial paper.
Earlier this year, the stablecoin provider issued an assurance report that detailed the company’s assets. Tether’s total funding is $62.7 billion, with commercial paper accounting for $30.8 billion.
Only 10% of Tether’s funding is in the form of cash.
The report debunked Tether’s own breakdown of its reserves, which asserted that 76% of Tether’s reserves were held in cash or cash equivalents. This, in turn, contradicted Tether’s previous claims that the token was 100% backed by cash.
According to Grant Thornton accountants, the USDC stablecoin is also heavily reliant on commercial paper. Despite previous claims by Circle, the company behind USDC, that the stablecoin was backed by cash on a one-to-one basis, a total of 14% of USDC is split between commercial paper and commercial bonds.
Stablecoins like the rest of the crypto industry, have been subjected to intense regulatory scrutiny in recent months.
U.S. Treasury Secretary, Janet Yellen, has already met with multiple federal agencies to develop a regulatory framework for stablecoins.
During the meeting, Yellen emphasized the ‘need to act quickly’ to ensure stablecoins are integrated into the broader regulatory framework in the United States.
Stablecoins, according to Federal Reserve Chair Jerome Powell, should be regulated in the same way that bank deposits and money market funds already are.
About Fitch Ratings
Fitch Ratings Inc. is an American credit rating agency and is one of the “Big Three credit rating agencies”, the other two being Moody’s and Standard & Poor’s.
It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975.
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