Federal Reserve says stablecoins are 'prone to runs' in new financial stability report

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The US Federal Reserve has spotlit the risk of market runs on stablecoins in a newly issued report.

In a May 9 report on financial stability, the Fed emphasized stablecoins alongside certain money market funds and bonds as areas of risk in the current financial system, specifically funding. 

"Some types of money market funds (MMFs) and stablecoins remain prone to runs," the Fed's report reads. "Funding risks at domestic banks are low, but structural vulnerabilities persist at some money market funds, bond funds, and stablecoins."

The report's timing is notable, as TerraUSD (UST), one of the largest stablecoins and the largest algorithmic stablecoin by total supply, is struggling to maintain its peg against the US dollar amid a broad sell-off in crypto markets and global equities.

Researchers for the Federal Reserve published work on stablecoin risks and benefits back in January. The topic has been growing in prominence in the policymaking world, particularly since the President's Working Group put out its report calling for new legislation to limit stablecoin risks back in November.

that report, the Financial Stability Oversight Board may step in to supervise stablecoins if Congress does not make new law addressing the sector.

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May 5, 2022, 3:17PM UTC