Janet Yellen: stablecoins are not a threat to the system
Janet Yellen: stablecoins are not a threat to the system
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Janet Yellen: stablecoins are not a threat to the system

By Eliano Martellucci - 13 May 2022

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US Treasury Secretary Janet Yellen says the stablecoin market is not large enough to be a concern for financial stability

Janet Yellen reassures financial markets about the “volatility” of stablecoins 

The comment comes exclusively from a tweet on the Watcher.Guru account. The US Treasury Secretary wants to reassure the entire crypto community, and beyond, from what has just happened.

From the latest statements, Janet Yellen does not seem to be worried about what just happened to the UST algorithmic stablecoin. 

According to the former Fed Chair, the fall of TerraUSD (UST) is not a wake-up call for financial stability. In fact, she says that the stablecoin market is not yet large enough to invoke the idea of systematic risk.

In traditional finance, a systematic risk is when the failure of an institution, large enough and interconnected enough with other entities, propagates within the financial system, creating a series of chain reactions. 

The subprime mortgage crisis of 2008 is a prime example.

However, these words must be given due weight, as considering only Tether (USDT) and USDC together, their market capitalization currently totals $130 billion

In short, it is no longer a niche market. 

Fear of what happened to UST spreads to other stablecoins

The Terra ecosystem episode adds to the list of myriad concerns and uncertainties that are characterizing this particular moment in history. A global pandemic, followed by the war between Russia and Ukraine and inflation that has reached historic highs, are certainly among the factors that are driving insecurity among investors

In particular, the cryptocurrency market seemed to be resilient to this succession of less than optimistic scenarios. Until Monday 9 May: apparently the term “Black Monday” seems to come in handy in the investment world. 

During this day, the entire crypto sector began a seemingly unstoppable slump. One particular case that certainly caught the entire market off guard was that of TerraUSD.

The loss of the peg from the dollar caused the entire ecosystem to collapse, bringing down LUNA as well as DeFi protocols such as Anchor, which was also involved in the incident. 

Luna collapse
The value of Terra LUNA collapses to zero

Tighter crypto regulations on the way? 

Are Janet Yellen’s words meant to represent a loosening of the grip on the need to regulate cryptocurrency exchanges and stablecoins? Or do they have the sole purpose of not spreading further panic in the market?

Certainly, the US Treasury Secretary has always been one of the biggest promoters of the idea of regulating the entire crypto sector. Perhaps what happened to LUNA and UST could be an extra push to speed up the process of creating a more

Eliano Martellucci

Eliano has a bachelor's degree in Economics and Business Administration and is about to complete his master's studies in Finance at the University of Trento (UNITN). He got hooked on the crypto and blockchain world during the summer of 2017 and has not left it since then. He currently works as editor & SEO specialist at Cryptonomist, writes articles and invests, both in Blue Chip and early stage assets. Furthermore, he is working on his latest thesis project entitled: "A Study on crypto market Sentiment Analysis through Machine Learning algorithms in python."

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