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Fed report: Stablecoins have the potential to be a digital safe haven when markets are in trouble

February 1, 2022
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Fed report: Stablecoins have the potential to be a digital safe haven when markets are in trouble

The Federal Reserve today released a new research report on stablecoins, pointing to the risks and potential of emerging digital assets. In the report, researchers Gordon Liao and John Caramichael examine the current stablecoin ecosystem and its impact on credit intermediation and central bank balance sheets.

The paper identifies potential threats to the stability of the Fed’s monetary policy and examines ways in which these threats can be mitigated. The report found that U.S. dollar-pegged stablecoins exhibit “safe asset qualities” compared to other crypto assets. Compared to other plummeting digital assets, their prices occasionally rise above the fixed rate during market distress events, resulting in more issuance.

Essentially, traders seek safety in stablecoins when the price of cryptocurrencies such as Bitcoin falls. “These events show that stablecoins have the potential to become digital safe havens in times of market distress,” the report said.

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