Popular credit rating agency Fitch Ratings has issued a warning that stablecoins could impact the securities market. Fitch, described as one of the “Big Three” credit rating agencies, recently admitted the dangers stablecoins could pose to the securities market.
Fitch believes that stablecoins approaching a systemically important scale could play a crucial role in the short-term securities market, although the agency didn’t rule out new risks it could introduce into the market. Fitch added that its impact would depend on the regulatory framework.
Stablecoin Could Disrupt Commercial Paper
Fitch Ratings disclosed that the turbulence associated with stablecoins could affect the commercial paper market alongside cast shocks to participants of other markets. Tether, the most popular stablecoin and the largest, are backed by almost 50% commercial paper.
Tether released a report earlier this year that showed the breakdown of the company’s assets. According to the report, $30.8B out of the $62.7B backings came from commercial paper. Only 10% was backed by cash. However, the report contradicted the company’s reserves breakdown in May, which revealed that 76% of Tether’s reserves were held in cash and its equivalents. Tether had previously claimed that the token was hundred percent backed by cash.
According to Grant Thornton’s report, the USDC stablecoin is also reliant on commercial paper. 14% of USDC is divided between commercial paper and bonds. Again, this contradicts previous claims that USDC was all backed by cash in a 1:1 ratio.
Stablecoins Have Been Under Regulatory Scrutiny Recently
In recent months, calls from the SEC, Treasury Department, and other regulatory bodies to regulate the crypto industry have been much. Treasury Secretary Janet Yellen has been meeting with several agencies since July with the intent of how best to regulate the volatile industry, particularly stablecoins.
Yellen, alongside Gary Gensler of the SEC, Jerome Powell of the Federal Reserve, and the heads of the CFTC and FDIC called a closed meeting of the President’s Working Group on Financial Markets to discuss stablecoins regulations, its growth, potential risks, and uses as a means of payment. Yellen emphasized the need to act quickly to ensure that stablecoins are run under the wings of the U.S. regulatory infrastructure. Fed Chair Jerome Powell agrees with the calls to regulate stablecoins, like bank deposits and money market funds.
According to CoinGecko, the market cap of the top three U.S. stablecoins – Tether, USDC, and Binance USD amounts to over $100B. Their popularity and growth have left U.S. regulatory agencies worried. Powell believes they should be regulated, citing that they lack a clear regulatory framework.
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