The market capitalization of stablecoins has reached a record, surpassing $280 billion (€243.478 billion), representing 8% of the total cryptocurrency market, according to data from the European Central Bank’s upcoming Financial Stability Report released today.
ECB economists consider the growth of stablecoins to be rapid, posing a potential risk to financial stability, particularly the U.S. Treasury securities market.
Stablecoins are digital currencies that aim to maintain a stable price, avoiding the high volatility of other virtual currencies like Bitcoin or Ether, by anchoring their value to currencies such as the U.S. dollar.
Two dollar-denominated stablecoins dominate the market: Tether (USDT) and USD Coin (USDC), with a market capitalization of $184 billion (63%) and $75 billion (26%), respectively.
Tether (USDT) and USD Coin (USDC) are backed by U.S. dollar reserves, meaning that each unit of these stablecoins is supported by a dollar in reserve, ensuring their value remains stable.
Dollar-denominated stablecoins represent 99% of the total supply of such digital currency in circulation, according to ECB data.
Euro-denominated stablecoins have little significance, with a market capitalization of €395 million.
USDT and USDC are the preferred units for trading on cryptocurrency platforms, which is the primary use of stablecoins, as they are infrequently used for remittances and other cross-border transactions.
If investors lose confidence in these digital currencies and sell large amounts, they may decouple from the asset backing them, which is the dollar.
Not only would the cryptocurrency markets be affected, but there could also be contagion to other traditional markets through the reserves supporting them.
USDT and USDC hold large amounts of U.S. Treasury securities and have reserves comparable to the 20 largest money market funds, according to the ECB.
Specifically, USDT and USDC have acquired short-term Treasury securities in recent months.
