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Designed to maintain a peg to a hard currency like the U.S. dollar, stablecoins are backed by assets that may lose value or become illiquid during stress. The U.S. central bank repeated its concerns that the tokens are therefore “vulnerable to runs” and said a lack of transparency around the assets may exacerbate those vulnerabilities.
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“Additionally, the increasing use of stablecoins to meet margin requirements for levered trading in other cryptocurrencies may amplify volatility in demand for stablecoins and heighten redemption risks,” the report said. The Fed has previously warned of financial risks posed by the fast-growing asset class.
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