- The European Central Bank has published an informative new article on digital assets titled ‘Decrypting the Financial Stability Risks in the Crypto Asset Market’.
- An informative article explains that the stablecoins of TerraUSD (UST) and Tether (USDT), as their names suggest, are not stable and cannot always be guaranteed to be pegged.
- The article also concluded that volatility in the crypto market can pose risks to your financial stability.
announced by the European Central Bank article There is a current debate about the future of digital assets, especially in the European Union. An article titled ‘Decrypting Financial Stability Risks in Crypto Asset Markets’ details current developments in the crypto industry, including the recent pegging of stablecoins such as UST and USDT.
Stablecoins like UST and USDT, as their names suggest, are not stable.
According to the ECB, the financial stability risks in the EU from crypto assets have been limited in the past. However, it is necessary to discuss the risks and developments of stablecoins ‘represented by the recent TerraUSD crash and Tether de-peg’. These stablecoins are ‘as the name suggests, are not stable and cannot always be guaranteed to be pegged’.
Crypto-Verse has grown dramatically since 2020
The ECB article also notes that since the end of 2020, the size and complexity of cryptocurrencies has increased dramatically and has expanded beyond Bitcoin.
Cryptocurrency market cap has increased about 7x since early 2020. The article points out that cryptocurrency trading volume sometimes exceeds that of traditional exchanges like the NYSE. It is stated as follows:
Volumes of the most representative crypto assets (including Bitcoin, Ether, and Tether) have at times been comparable to or greater than quarterly volumes on the New York Stock Exchange or Euro area government bonds.
Although there are currently over 16,000 cryptoassets in existence (an average of 10 new cryptoassets are launched every day), only about 25 cryptoassets have market caps comparable to large stocks.
Crypto markets are evolving rapidly and may pose risks to financial stability
At the end of the article, the ECB team made the following observations about the crypto industry:
- The nature and size of the crypto market continues to evolve at a rapid pace. If current trends continue, cryptocurrencies may pose a risk to financial stability.
- The interconnectedness between the traditional financial sector and the cryptocurrency market means that the use of leverage and lending activity increases systemic risk.
- Cryptocurrency regulation should be a priority for the European Union.