A recent analysis of stablecoins by Chinese economists underscores potential risks related to their dependence on traditional reserves, highlighting the importance of backing scrutiny.
Assumed Stablecoin Risks
Chinese financial experts have noted that stablecoins, as digital proxies for fiat, rely on reserve assets, posing potential risks exemplified by the collapse of UST. Zou Chuanwei remarked, 'The mainstream model of stablecoins did not create new currencies, but simply tokenized bank deposits and invested reserve assets in low-risk assets such as US bonds.'
Lessons from the UST Collapse
Zhao Binghao emphasized that under extreme market conditions, the value of stablecoins may significantly drop, as demonstrated by the UST collapse. He stated, 'The stability of stablecoins depends on the reserve assets of the issuer. In extreme market environments, the value of stablecoins may even return to zero, and the collapse of UST is a typical example.'
Need for Enhanced Reserve Transparency
Experts noted the necessity for strict reserve compliance to ensure the needed stability of stablecoins. Data indicates Tether (USDT) maintains stability at $1.00. The Coincu research team anticipates that increased transparency efforts will lead to stricter audits and technological improvements in reserve management.
The introduction of more rigorous scrutiny of stablecoin reserves is becoming increasingly relevant following the analysis conducted by Chinese economists. They emphasize the importance of transparency to ensure the stability of these digital assets.
