Stablecoins pose massive risks to financial stability, and remain vulnerable to liquidity risks, according to a November Financial Stability report published by the U.S. Federal Reserve.
What Happened: According to a survey by the Federal Reserve, over 20% of respondents believe that stablecoins are a potential risk to the U.S. economy over the next 12 to 18 months.
Stablecoins are cryptocurrencies designed to have a constant price and are pegged to fiat currency like the dollar. Some examples of stablecoins are Tether USDT/USD, and USD Coin USDC/USD.
The market capitalization of stablecoins has fallen 7% to $143 billion since the previous Financial Stability Report, after exhibiting a much larger decline earlier in the year following the collapse of TerraUSD.
See More: How Do Stablecoins Make Money?
Why Is It Important: TerraUSD UST/USD was a stablecoin with a market capitalization of about $18 billion before its collapse in May. Both the market capitalization of TerraUSD and of the whole Terra blockchain, including its governance token Luna, were wiped out. The collapse of the Terra blockchain was followed by strains throughout the digital assets ecosystem, highlighting vulnerabilities and interconnections in the space.
“Some stablecoins have structural vulnerabilities that mirror those of cash-like vehicles that engage in liquidity transformation and hold risky assets, like certain MMFs,” the report states.
Price Action: Terra LUNA/USD was at $2.40, up by 0.72% over the last 24 hours, at the time of writing, according to Benzinga Pro.