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Stablecoins Are Vulnerable to Runs, May Heighten Risks, Fed Says

  • Warns of rising use of stablecoins to meet margin requirements
  • Algorithmic stablecoin TerraUSD under stress amid crypto rout

The increasing use of stablecoins to meet margin requirements in leveraged crypto trades may heighten redemption risks, the Federal Reserve said in its semi-annual Financial Stability Report published Monday.

Designed to maintain a peg to a hard currency like the U.S. dollar, stablecoins are backed by assets that may lose value or become illiquid during stress. The U.S. central bank repeated its concerns that the tokens are therefore “vulnerable to runs” and said a lack of transparency around the assets may exacerbate those vulnerabilities.