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"Financial institutions whitethorn reconsider adopting stablecoins to settee agreements involving tokenized securities retired of interest implicit the coins' imaginable volatility,” Moody’s said.
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Recent turmoil successful the accepted banking sector, culminating successful USD Coin (USDC) losing its peg, could negatively impact stablecoin adoption and perchance summation calls for regulation, argues recognition standing bureau Moody’s Investors Service.
In its latest Sector Comment study published connected March 16, Moody’s said fiat-backed stablecoins could look caller absorption pursuing USDC’s de-pegging connected March 10.
“Until now, ample fiat-backed stablecoins had shown singular resilience, having emerged unscathed from past scandals specified arsenic the illness of FTX,” wrote analysts Cristiano Ventricelli, Vincent Gusdorf, Rajeev Bamra and Fabian Astic. “However, caller events person shown that the reliance of stablecoin issuers connected a comparatively tiny acceptable of off-chain fiscal institutions limits their stability.”
Customers lining up extracurricular of Silicon Valley Bank astatine its Menlo Park, CA branch. pic.twitter.com/SDNrSUC1C0
— Cointelegraph (@Cointelegraph) March 10, 2023The sudden illness of Silicon Valley Bank connected March 10 was a important hazard lawsuit for USDC issuer Circle Internet Financial, which had $3.3 cardinal successful assets tied up successful the bank. Over the span of 3 days, Circle cleared astir $3 cardinal successful USDC redemptions arsenic the worth of its stablecoin plunged to a debased of astir $0.87.
By extremity of U.S. banking operations connected March 15, Circle had “cleared substantially each of the backlog of minting and redemption requests for USDC,” the institution said.
Update: As of adjacent of U.S. banking operations Wednesday, March 15, we person cleared substantially each of the backlog of minting and redemption requests for USDC. Get the details: https://t.co/5WEAgPps0E
— Circle (@circle) March 16, 2023USDC rapidly regained its peg aft the Federal Deposit Insurance Corporation, oregon FDIC, announced that it would backstop each deposits held astatine Silicon Valley Bank. Circle CEO Jeremy Allaire told Bloomberg connected March 14 that his steadfast could present fully entree its $3.3 cardinal reserves.
Related: Crypto Biz: SVB collapses, USDC depegs, Bitcoin inactive up
Although calls to modulate stablecoins person grown louder pursuing the Terra Luna collapse, fiat-backed stablecoins similar the 1 issued by Circle run otherwise than the algorithmic token that failed successful May 2022. Nevertheless, Moody’s believes that regulators are apt to prosecute much stringent oversight of the assemblage moving forward.
The recognition standing bureau said that USDC was capable to regain its peg lone erstwhile U.S. regulators decided to repay Silicon Valley Bank’s unsecured deposits. “Otherwise, USDC could person suffered from a tally and been forced to liquidate its assets,” Moody’s analysts said, adding:
“Given the existent marketplace volatility, specified a script could, successful turn, person caused much runs connected banks holding Circle's assets, which could person led to the depegging of different stablecoins.”
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