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Cryptocurrency News Articles
Deutsche Bank Warns of Stablecoin Market Collapse, Raises Red Flags Over Tether's Dominance
May 10, 2024 at 02:01 pm
Deutsche Bank financial analysts predict that the majority of stablecoins are likely to crash, stating that only 14% of the 334 pegged currencies researched have endured. This prediction contrasts sharply with Ripple's optimistic forecast for the stablecoin market to reach $3 trillion by 2028. Deutsche Bank's analysts emphasize the importance of credibility, reserve backing, and stringent operational controls for the success of pegged currencies, which they claim several prominent stablecoins currently lack.
Deutsche Bank Warns of Impending Doom for Stablecoin Market, Raises Concerns Over Tether's Dominance
Deutsche Bank's research analysts have issued a dire prediction, forecasting the imminent collapse of most stablecoins. Their comprehensive analysis of 334 currency pegs revealed that only a meager 14% have endured the test of time. "Some may survive, although most will likely fail," the analysts grimly stated in their recently published research note. This sobering forecast conflicts starkly with the optimistic projections of industry giants like Ripple, which envision a $3 trillion stablecoin market by 2028.
The Imperative of Credibility for Stablecoins
Stablecoins' allure stems from their promise of a one-to-one peg with established fiat currencies like the US dollar or the euro. This feature provides crypto investors with the convenience of trading in crypto assets while safeguarding them from volatile price fluctuations.
Tether Holding Ltd.'s USDT token has emerged as the titan of the stablecoin market, boasting a market capitalization that recently surpassed $100 billion. Notably, its daily trading volume consistently eclipses that of Bitcoin.
However, the market's triumph has been marred by notable casualties, such as the catastrophic demise of Terraform Labs' algorithmic stablecoin TerraUSD and its companion token Luna. This disastrous episode resulted in the evaporation of an estimated $40 billion worth of cryptocurrency value.
Deutsche Bank analysts emphasize that the long-term success of stablecoins hinges on three pillars: credibility, reserve backing, and exacting operational controls. Regrettably, these qualities remain elusive for many of the major stablecoins currently circulating. "The 30% de-peg rate among some stablecoins is therefore hardly surprising, and many more defunct stablecoins are hard to account for," concluded the Deutsche Bank researchers.
Tether's Dominance Draws Suspicion
The research team harbors particular apprehension towards Tether, given its unyielding dominance in the stablecoin market. They attribute this preeminence to speculation and a palpable lack of transparency. They indict Tether for a history of misleading statements concerning its reserve holdings, which culminated in a $41 million settlement with the Commodity Futures Trading Commission (CFTC). In a further blow to Tether's reputation, a recent report implicated USDT as the most prevalent stablecoin choice for criminal activities.
The Intertwined Fate of Stablecoins and Crypto Derivatives
Deutsche Bank analysts also highlight the inherent risks associated with Tether's outsized influence in the crypto derivatives market. The failure of Tether could trigger a cascading effect, exacerbating losses and amplifying the volatility of leveraged trades.
In response to these mounting concerns, Tether has sought to bolster its credibility by issuing quarterly attestations of its reserves, following settlements with both the CFTC and New York state authorities. However, Tether remains defiant, dismissing these allegations as "vague assertions" devoid of substantial evidence.
Stablecoins: A Historical Perspective
Marion Laboure, senior strategist at Deutsche Bank Research and a co-author of the report, explained the decision to compare stablecoins to peg currencies due to their historical similarities. "Both are pegged currencies," Laboure explained, emphasizing the shared need for ample reserves and issuer credibility. Both stablecoins and peg currencies are susceptible to speculative pressures and are predominantly tied to the US dollar.
Implications for Investors
The Deutsche Bank report serves as a stark reminder of the inherent risks associated with stablecoins. Investors are urged to exercise extreme caution when considering investments in this volatile market. The "doomsday" prediction should prompt a reassessment of stablecoin holdings, with a particular focus on the exposure to Tether.
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