LONDON/NEW YORK, March 5 (Reuters) – As Tether toasts $100 billion in circulation this week, the rapid rise of the world’s biggest stablecoin has highlighted concerns about potential risks to wider financial markets.
The digital dollar-pegged token is designed to keep a constant value, something Tether says that it does by holding dollar-denominated reserves for every token it creates.
Crypto traders say the tokens are essential for moving funds in crypto quickly, without using the regulated banking system.
“Tether plays a pivotal role in our day-to-day operations, primarily serving as a mechanism for moving funds swiftly between trading venues,” said Michael Hall, founding partner of London-based crypto asset manager Nickel Digital.
Regulators, however, have long-standing concerns that growing stablecoin reserves expose the broader financial system to bigger risks, because they act as a bridge between the crypto universe and mainstream financial markets.
James Butterfill, head of research at asset manager CoinShares, said that Tether’s dominance increases systemic risk within crypto.
“If Tether fails for some unlikely reason, it would lead to a dramatic decline in trading volumes,” he said.
U.S. regulators have warned banks that stablecoin reserves could be subject to rapid outflows, for example if holders rushed to exchange such tokens back into traditional currency.
