Why Stablecoins are an oxymoron to their name
FTX crash, regulatory enforcement actions, recent security breaches on DeFi protocols, and attacks on Stablecoin liquidity pools, have eroded the cryptocurrency's stability promise.
A Stablecoin is a popular form of cryptocurrency designed to maintain a constant value through a peg to another asset.
In 2022, the cumulative market capitalization of Stablecoins was around $180 billion, which declined to nearly $120 billion in 2023.
«Many investors have chosen to divest their Stablecoin holdings, partly in reaction to lack of transparency around the underlying reserves that support many stablecoins. In a rising interest rate environment, the appeal of higher yields offered by traditional assets is also likely contributing to a shift away from stablecoins,» Moody's said in its report.
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View Details»Stating the reason for depegs of stablecoins, Rajeev Bamra, SVP – DeFI & Digital Analytics, Moody’s Investors Service, said, “There have been multiple drivers of Stablecoin depegs in recent years. Major factors included lack of regulation, governance and risk management issues at a large crypto exchange, stress within traditional finance, and imbalances in digital asset pools that supply liquidity to decentralized exchanges.”
Even with recent challenges, Stablecoins are likely to play an important part in shaping the future landscape of digital money. Moody's, in its report, stated that it saw signs of growth in
