US Fed Reserve Banks State Stablecoins Could Inject Instability in Economy The United States Federal Reserve Banks of Boston and New York
have published a data-driven report that delves into the potential impact of stablecoins on the broader economic landscape. In the
49-page report titled "Runs and Flights to Safety: Are Stablecoins the New Money Market," stablecoins are likened to certain traditional finance vehicles,
notably money market funds (MMFs).
The comprehensive report
also highlighted that stablecoins and MMFs provide money-like assets to investors due to their stable nominal value by engaging
in liquidity transformation. However, like conventional bank deposits,
issuing continuous liquidity may render them vulnerable to runs.
The report also includes a case study
of stablecoin runs, specifically focusing on incidents
involving USDT and USDC in 2022 and 2023. It draws similarities and differences
between these events and the runs experienced by money market funds in 2008 and 2020. As per the investigative research,
stablecoins are vulnerable during downtrends in the broader cryptocurrency market or when unexpected issues arise.
