Economist Eswar Prasad has warned that a bank run on stablecoins could affect the US bond market if issuers sell US Treasuries to mark their redemptions.
Prasad warned that if bond market sentiment were “very weak” and a bank run occurred, there could be a “multiplier effect” from huge selling pressure on Treasuries.
“Even in a fairly liquid market, large redemptions can cause disruption to the underlying securities market. I think it’s understandable that regulators are concerned.”
Stablecoins like Tether (USDT) backed by billions of dollars in reserves to meet mass redemption scenarios, according to USDT November 2022 report.
But Prasad warned Regulators believe that issuers such as USDT will have to sell assets in their reserves as more users seek to convert their stablecoins into fiat currency.
“If there is a massive wave of redemptions that could really undermine the liquidity of that market.”
The Economist first appeared on CryptoSlate, warning that the US bond market could be affected after the collapse of stablecoins.