Ripples in the Crypto Economy: Could Stablecoins Be to Blame?

Stablecoins are a type of digital currency. The developers designed them to maintain their value over time and linked them to a fiat currency, usually the US dollar. In this configuration, one unit of cryptocurrency equals one fiat currency unit. In contrast to extremely volatile cryptocurrencies such as Bitcoin, the value of stablecoin is constant. However, due to recent events in the stablecoin market, like the crash of TerraUSD, the government is actively investigating this sector. Treasury Secretary Janet Yellen has stated that stablecoins threaten financial stability. In addition, the Federal Reserve issued a paper condemning the lack of transparency and regulation in the stablecoin market. What are Stablecoins? Stablecoins are cryptocurrencies that have their value connected to another asset. Most of the time, the other asset is fiat money, such as the US dollar or the euro. The coin’s value remains stable over time, at least in proportion to its linked currency. This is because the underlying asset’s value remains constant. In some ways, it’s as if the underlying asset, such as a dollar, has been transformed into a computer file. They back up stablecoin by the asset to which it links because they aim to track an asset. A company that produces a stablecoin, for example, will regularly set up a reserve with a financial institution that owns the asset on which the stablecoin is based. Most cryptocurrencies, such as Bitcoin...