IMF Exec Believes More Stablecoins Are Vulnerable to Runs and Sell-Offs

Tobias Adrian is the director of monetary and capital markets for the IMF.

By Shomik Sen Bhattacharjee | Updated: 29 July 2022 12:27 IST

IMF Exec Believes More Stablecoins Are Vulnerable to Runs and Sell-Offs

Photo Credit: Unsplash/ Drawkit Illustrations

IMF believes that cryptocurrency crisis could worsen

Highlights

The recent crypto market downturn was caused by the Terra debacle
Adrian believes regulators should focus on crypto wallets, exchanges
More vulnerable fiat-backed stablecoins are likely to see bank runs

An International Monetary Fund (IMF) executive believes that there could be further drops in both equity and crypto markets in the near future. In a fresh interview, Tobias Adrian, director of monetary and capital markets for the IMF said the stablecoin sector, in particular, could be vulnerable in such a downturn. It is worth noting that the current cryptocurrency crisis was largely triggered by the downfall of the TerraUSD (UST) algorithmic stablecoin that, over time, took the whole ecosystem down.

"We could see further sell-offs, both in crypto assets and in risky asset markets, like equities. There could be further failures of some of the coin offerings – in particular, some of the algorithmic stablecoins that have been hit most hard, and there are others that could fail," said Adrian speaking with Yahoo Finance.

Adrian isn't just concerned about algorithmic stablecoins. The IMF official specifically mentioned Tether, the largest stablecoin by market cap, as an asset that could face major stress tests.

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"There's some vulnerability there because they're not backed one to one… [Some fiat-backed stablecoins] are backed by somewhat risky assets…it is certainly a vulnerability that some of the stablecoins are not fully backed by cash-like assets."

Adrian says that 100 percent cash-backed stablecoins would be less susceptible to such a situation.

The IMF director also says that one of the main priorities for authorities should be to regulate the industry's key choke points like wallets and exchanges.

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"There are 40,000 coins out there. Regulating the coins themselves is going to be difficult, but regulating the entry points such as exchanges and wallet providers to invest in those coins, that's something that is very concrete and very feasible."

Adrian notes that the effects of failed cryptocurrencies have not spilled over into mainstream finance. They noted that banks are not exposed to hidden assets through cryptocurrency like they were exposed to "shadow banks" during the 2008 financial crisis.

Now although the failure of stablecoins may have little impact on the mainstream market, they do make up a substantial part of the crypto market and put a lot of projects in grave danger.

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