In brief

  • Fitch Ratings has warned that stablecoins could have an impact on securities markets.
  • The credit rating agency said stablecoins could bring new risks to the commercial paper market.

Fitch Ratings, a credit rating agency and one of the “Big Three” credit rating agencies—flanked by Moody’s and Standard and Poor’s S&P—has warned that stablecoins may affect the securities markets. 

“Fitch Ratings believes stablecoins that approach a systemically important scale could come to play an important role in short-term securities markets, such as commercial paper, while bringing new risks to these markets,” Fitch Ratings said today. 

Fitch Ratings added that the extent to which stablecoins impact securities will depend on the “evolution of regulations affecting the asset class.” 


Stablecoins and commercial paper

Fitch Ratings went on to add that “stablecoin-related turbulence” could disrupt the commercial paper market, as well as “transmit shocks to other market participants.” 

Tether—the world’s largest and most well-known stablecoin—is, for example, almost 50% backed by commercial paper. 

The stablecoin provider released an assurance report earlier this year that provided a breakdown of the company’s assets. Of Tether’s total $62.7 billion backing , $30.8 billion comes from commercial paper. Only 10% of Tether’s backing comes from cash. 

The report was at odds with Tether’s own breakdown of its reserves released in May, which suggested 76% of Tether’s reserves were held in cash or cash equivalents. That, in turn, was at odds with previous claims by Tether that the token was 100% backed by cash. 

The USDC stablecoin, according to a report written by Grant Thornton accountants, is also substantially reliant on commercial paper. A total of 14% of USDC is split between commercial paper and commercial bonds, again despite previous claims by Circle—the company behind USDC—that the stablecoin was backed by cash on a 1-to-1 basis.


Regulators circle 

Stablecoins—much like the rest of the crypto industry—have come under much regulatory scrutiny in recent months. 

The U.S. Treasury Secretary Janet Yellen has already met with multiple federal agencies with the express purpose of carving out a regulatory approach for stablecoins. 

During the meeting, Yellen emphasized that there is a “need to act quickly” to ensure stablecoins are reined into the broader U.S. regulatory framework. Federal Reserve Chair, Jerome Powell, believes stablecoins ought to be regulated in a similar way to bank deposits and money market funds.

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