December 11, 2023

JPMorgan: Stablecoins could become a source of financial instability

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JPMorgan: Stablecoins could become a source of financial instability

Analysts at the investment bank JPMorgan presented a report in which they said that stablecoins and their issuers could bring instability to the global financial system.

A document entitled "Raids and Escapes inSecurity: Are Stablecoins the New Money Market Funds? includes a comparison of investor behavior during the 2022 and 2023 stablecoin releases with investor behavior in 2008 and 2020.

“Our results suggest that stablecoins are vulnerable during periods of widespread turmoil in the cryptocurrency market, as well as during periods of particularly stressful events,” the analysts wrote.

If stablecoins continue to grow and becomemore interconnected with key financial markets, they could become “a source of financial instability for the broader financial system,” the document says. In particular, the report mentions such popular stablecoins as USDT and USDC.

In the latest quarterly financial reportTether reported $5.5 billion in loans. Tether's lending model, in which customers can borrow US dollars in exchange for USDT collateral, has been repeatedly criticized by financial regulators, particularly due to the perceived opacity of the nature of the collateral and the identity of the borrowers.

Recently, Circle, a stablecoin issuerUSDC announced the launch of its main asset on the BASE network. To access USDC on the BASE network, developers and customers can use their Circle accounts and Circle API.