Global rating company Fitch Ratings warns that stablecoins like Tether (USDT) could bring new risks into short-term securities markets.
Tether is also a massive investor in the $1.1 trillion paper market. According to Fitch, with the stable coins growth rate, the issuer’s holdings of short-term debt instruments like commercial paper would exceed the money market funds in the next two to three years.
In a press release, the firm said that the scale of run risks and stablecoin-related storms posed to commercial paper markets would be based on how well regulations affect the crypto asset class.
“Stablecoin-related turbulence can affect the commercial paper market itself and can even transfer shocks to other market participants. Risks can further be aggravated if the partners and infrastructure used by stablecoin operators for engaging with traditional markets, lack in the smooth transactions handling during situations like volatility and market stress,” said Fitch. It also mentioned the potential impact of the Facebook-launched Diem project (also called Libra).
Fitch believes Diem’s launch can intensify the sector’s market value
Last week, as TheCoinRise reported, The United States Commodity Futures Trading Commission (CFTC) fined Tether and Bitfinex a total of $42.5 million over violating Commodity Exchange Act (CEA). In June, the company claimed that the stablecoin holds around 50% of its $62.8 billion reserves in commercial paper.
Fitch further said that with dollar-backed stablecoin, Diem’s prospective launch could additionally increase the class’ market value growth.
Previously, Diem had said that it would hold at least 80% of its reserves in short-term government securities, and the rest remains in cash.
Fitch said, “It should not directly impact the Commercial paper market due to the government-securities focus of Diem’s declared reserve allocation plan. However, alternative allocation strategies are still possible, and based on its scaling; the operator may become a crucial participant in other short-term markets.”