Researchers at the Federal Reserve’s New York branch say stablecoins resemble money market funds, which could pose a threat to the broader financial system.
A new research report released by the New York Fed finds that stablecoins bear some similarities to money market funds, a type of mutual fund registered with the U.S. Securities and Exchange Commission that seeks to stabilize investments with relatively low risk. price.
It is estimated that more than $5 trillion in assets has been invested in money market funds. Like money market funds, stablecoins provide investors with a currency-like asset that is vulnerable to runs, and in times of stress there can be a flight to safety, with investors exchanging them for other assets they view as less risky.
Researchers say these dynamics of runs and flights to safety in stablecoins are similar to those observed in the MMF industry.
If stablecoins continue to grow and become more closely linked to key financial markets such as short-term funding markets, they could become a source of financial instability for the broader financial system.