Tether coin – potential risk financial stability?

At the end of May, the head of the Boston Fed, Eric Rosengren, identified the tether coin and similar “stable coins” as a potential risk factor for general financial stability.

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What is Tether coin?

Tether coin is currently the third most popular and valuable cryptocurrency today. By its nature, the tether is tied to the dollar’s value. From this position stems its popularity because the path of many investors into the world of cryptocurrencies first leads through the tether.

The main risk of the tether is its “alleged” connection with the dollar. The market is increasingly concerned that this merger is or may only be “paper,” and the underlying dollar fully covers not all tethers.

According to tether, which protects the cryptocurrency of the same name, only 2.9% of ropes are currently covered by cash. The rest is covered only by commercial paper, which is a form of primarily unsecured short-term liabilities. With about $ 60 billion in total market capitalization of the tether of around $ 60 billion, this would mean that management Tether has more deposits than many US banks and ranks 10th in the global commercial paper rankings.

Tether coin is compared in this respect, for example, to traditional monetary funds. Still, the essential difference is that the cryptocurrency is not subject to essentially any regulation, unlike the mentioned funds, where the principle is, on the contrary, very significant. According to some experts, this is a very high risk. A possible loss of confidence in the coverage of the cryptocurrency may cause a very considerable liquidity shock for the entire cryptocurrency sector and thus for the broader financial industry.