Stable coin adoption risk warns of Moody
Report, Moody’s Investors Service has advised that the recent insecurity in the traditional banking sector could have a negative impact on the relinquishment of stable coins.
The credit standing agency has stressed the pitfalls that edict- backed stable coins like USDC face, stating that the reliance of stable coin issuers on a small set of out- chain fiscal institutions limits their stability. The depegging of USDC on March 10, which was caused by the unforeseen collapse of Silicon Valley Bank, has stressed this threat.
Circle Internet Financial, the issuer of USDC, had$3.3 billion in means tied up in the bank, and over the span of three days, the company cleared roughly$ 3 billion in USDC redemptions as the value of its stable coin plunged to a low of around$0.87.
Still, USDC snappily recaptured its cut after the Federal Deposit Insurance Corporation blazoned that it would backstop all deposits held at Silicon Valley Bank. Moody’s judges believe that controllers are likely to pursue more strict oversight of the stable coin sector moving forward, given the recent request volatility and the implicit pitfalls associated with stable coins.
The credit standing agency has also advised that if USDC hadn’t recaptured its cut, it could have suffered from a run and been forced to liquidate its means. Such a script could have caused more runs on banks holding Circle’s means, which could have led to the depegging of other stablecoins.
Despite the collapse of Terra, which led to calls for the regulation of stablecoins, Moody’s believes that edict- backed stablecoins like USDC operate else from algorithmic commemoratives and are less likely to fail. nonetheless, the credit standing agency warns that stablecoin issuers must take way to reduce their reliance on a small set of out- chain fiscal institutions to ameliorate their stability.
In conclusion, the recent insecurity in the traditional banking sector and the depegging of USDC have stressed the implicit pitfalls associated with stablecoins. While Moody’s believes that edict- backed stablecoins are less likely to fail than algorithmic commemoratives, the credit standing agency warns that stablecoin issuers must take way to reduce their reliance on a small set of out- chain fiscal institutions.
With controllers likely to pursue more strict oversight of the stable coin sector moving forward, stable coin relinquishment could be negatively impacted.
