Economist Eswar Prasad warned that a bank run on Stablecoins could have ramifications in the US bond markets if issuers sell US Treasury bonds to meet redemptions.
Prasad warned that if a bank run occurs when bond market sentiment remained “extremely weak,” the “multiplier effect” from massive selling pressure on Treasurys might ensue.
“A big volume of redemptions even in a fairly liquid market might create volatility in the underlying securities market. And, considering the importance of the Treasury securities market to the broader financial system in the United States... ”I believe regulators are correct to be concerned.
According to USDT's November 2022 report, stablecoins such as Tether (USDT) are backed by billions of dollars in reserves to support mass-redemption eventualities.
However, Prasad warned regulators that if a large number of users attempted to redeem their Stablecoin for cash, issuers such as USDT would be forced to sell assets in their reserve.
“A significant surge of redemptions can really harm liquidity in that market.”
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