Big Three Credit Bureaus Stablecoin Growth Could Be ‘Disruptive’ to Securities Markets- Fitch

Fitch Ratings, one of the ‘Big Three’ credit rating agencies in the United States, has issued a study claiming that the rise of stablecoins might have an impact on the securities and commercial paper (CP) markets. Stablecoins might be “disruptive,” according to the agency, and “stablecoin-related instability” could “transmit shocks” to other markets.

‘Stablecoins Could Be Disruptive for CP Markets,’ -Fitch Ratings

Fitch Ratings, one of the ‘Big Three’ ratings agencies, released a study on stablecoins and their rise on Monday. The analysis comes on the heels of a Fitch report on El Salvador’s use of bitcoin (BTC) as legal money. Stablecoins have expanded rapidly, according to the newest study, and the authors of the Fitch analysis emphasize the expansion of the popular stablecoin tether (USDT). Facebook’s alleged ambitions to establish a stablecoin crypto-asset named “Diem” are also mentioned in the research.

“Because of the quick rise of stablecoins, these security holdings are already rather significant,” according to Fitch. Tether’s annualized market value growth slowed to 45 percent in 2Q21, although it has increased by 230 percent since the start of 2021 to reach USD68.6 billion, according to the rating agency. According to Fitch Ratings, this expansion and “reserve allocations” might turn into a “major investor group” in the US commercial paper market. The article goes on to say:


For example, due to run risks, stablecoins might be disruptive to CP markets. Turbulence in the stablecoin market might influence the CP market as well as send shocks to other market players. The risks might be exacerbated if the infrastructure and partners utilized by stablecoin operators to connect with traditional markets do not have a track record of fast transaction processing during times of market stress or volatility.

Regulations will dictate how the stablecoin industry grows, according to Fitch analysts in their newest stablecoin study, which was released on Monday. Regulatory methods in the EU and the US are now “unclear,” according to the Fitch writers. The research implies that government organizations may be able to keep stablecoins specified if they pledge to hold reserves such as cash and low-risk government securities. The Fitch research indicates that over-collateralization, which algorithmic and decentralized finance (defi) stablecoins like DAI leverage, might minimize total harm.