Stable coins must be tied to real rules

As America's oldest money market fund in 2008 "the Black Peter Brach", this was a key moment of the financial crisis. The Reserve Primary Fund had to break its promise to return its investors to 1 dollar for each share after the groundbreaking bankruptcy of Lehman Brothers. Private investors soon found that the bank -like stability promised by such funds did not mean a bank -like protection. This was followed by stricter regulations in which money market funds could be invested. Something like this could happen on the $ 1.3 trillion cryptoma market.

tether, the largest stable coin in the cryptosphere, briefly solved its one-to-one connection to the US dollar last week. In contrast to Bitcoin or other rather esoteric crypto-assets, stable coins, as the name suggests, should avoid volatility. They claim to be underpinned by real assets and act as an important cog for the cryptom market by offering dealers a safe place where they can park their money between bets on volatal digital coins. This stability is now questioned and the entire cryptom market is restless.

Tether fell to 95.11 cents on Thursday before it recovered. It says that it continued to redeem its tokens at $ 1 to those who asked them (until Friday it had inquiries worth more than $ 4 billion). In the meantime, a smaller stable coin rival called Terrausd-which did not even claim the security network of the actual reserves and instead based on a binding controlled by algorithms-was value.

When armchairs lose their shirts and see a few crypto brothers how their ego is emptied, the reaction can be a shrug. It is not as if there were no warnings. But that underestimates the risks of the real economy through the 180 billion dollar stable market.

If Tether actually has $ 80 billion in assets to cover its 80 billion coins, it would become one of the largest hedge funds in the world, with almost half of its stocks in US government bonds and another quarter in corporate bonds. If there is an emergency sale of these assets, while Tether tries to maintain his dollar bond, or faces a wave of returns, the sheer size of such movements could make the already nervous financial markets even more volatile.

It does not help that there were stubborn questions about whether Tether's assets really cover his coins completely and the associated fines from two US guards. Reports indicate that part of the corporate bonds are issued by Chinese companies. Even in view of the Farrago of the past week, the company has decidedly refused to indicate details of how its apparently huge reserves are managed and claims that this would amount to its "secret sauce". To their own disadvantage, the banks have determined that distrust only triggers a rush to the exit. The faith of the real believers of crypto can still be put to the test.

That means that politicians have to stop and have to adopt the warnings of stable coins from central banks such as the Federal Reserve, the Bank of England and the European Central Bank. Banks only keep a fraction of their assets as liquid reserves to secure the value of the deposits. In return, they are strictly regulated. Stable coins can trigger bank -like runs, but enjoy the sparse regulation of the cryptosphere. It takes rules from the real world.

Part of the problem is to define what crypto assets are and which authority should therefore have supervision; Stable coins of muddy definitions. Another problem is the very different settings of the countries to crypto: where some risks see, other rewards see. If you do not act together, act is futile, as the British supervisory authority found out when she refused Binance, a large crypto exchange that is now welcomed by France. But district fights are a distraction when it comes to an 180 billion dollar market with a global range. The risk of inactivity is that the financial stability is threatened by the next, larger wiggling of the stable coins.