Cornell Professor Warns of US Bond Market Disruption Over Potential Collapse of Major Stablecoin Cryptocurrencies and ICOs

A Cornell University professor has warned of the potential effects the collapse of a major stablecoin could have on the US bond market. Eswar Prasad said that if the major stablecoins face a collapse, the amount of bonds in the Treasury they would need to sell could disrupt the US Treasury market, affecting prices.

Cornell Professor Warns of Danger of Stablecoin Collapse

Eswar Prasad, a professor of economics at Cornell University, warned of the potential damage a bank run on a possible collapse of a major stablecoin could bring to the traditional financial system in the US. Although the most recent collapse in the economy cryptography didn’t make it to legacy. financial structures, Prasad believes that stablecoins and their operations present risks in this regard.

In an interview with CNBC, Prasad argument that stablecoins use US Treasuries as backing to maintain the value of the peg. In the event that one of the large stablecoins in the market faces a collapse or bank run, these organizations would have to swap these bonds to process their own swaps, which would affect the Treasury bond market.

Prasad stated:

A large volume of redemptions, even in a fairly liquid market, can lead to confusion in the underlying stock market. And given the importance of the Treasury market to the broader US financial system, I think regulators are rightly concerned.

According to their report, the three major stablecoins hold a large amount of US bonds in their treasuries. According to reports issued in November, the issuers of Circle, Tether and Paxos, issuers of the top three stablecoins in the crypto market, would own close to $60 billion in US Treasuries.

Incoming Regulation

While a clear regulatory framework for stablecoins in the US has yet to be put in place to address the potential issues of their collapse, regulation may be on the horizon. In December, Republican Senator Pat Toomey introduced the “Uniform Secure Transactions and Transparency for Stablecoins Act of 2022,” also known as the TRUST Act, with the goal of regulating stablecoin operations without hindering innovation.

Also, recently, the US House Committee on Financial Services created the “first subcommittee on Digital Assets, Financial Technology and Inclusion”, with the intention of providing clear rules for the digital cryptocurrency ecosystem, which also it could include stablecoins in the future.

The stablecoin market was rocked in 2022, when one of the top five algorithmic stablecoins, UST, crashed and went from a capitalization of about $10 billion in January to just $215 million in December.

What do you think about concerns about the effect of a stablecoin bank run on the US bond market? Tell us in the comment section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as someone who was late to the game, entering the cryptosphere when the price spike occurred in December 2017. With a background in computer engineering, living in Venezuela and being impacted by the rise of cryptocurrencies on a societal level, offers a different point of view. about the success of cryptocurrencies and how he helps the unbanked and underserved.

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