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Will crypto ever do harm to traditional finance?

The Tether case that arose following the dump of the algortmic protocol underlying UST, stablecoin of the ecosystem created around LUNA continues to terrify DeFi industry analysts.

The Hong Kong Monetary Authority has assessed the situation and found that instabilities in cryptographic assets, including asset-backed stablecoins, have the potential to cause serious problems for the traditional financial system.

According to the Hong Kong central bank, the interconnectedness of crypto assets has made the crypto ecosystem more vulnerable to systematic shocks. In addition, increased exposure by financial institutions to crypto ecosystems can trigger a chain reaction that is not easy to control even for central authorities in traditional markets.

The risk is mainly related to the depeg of the stablecoin Tether (USDT)

The collapse of Terra USD (UST), the algorithmic stable coin issued by Terraform Labs caused a brief depeg of the dollar Tether cross that greatly spooked markets.

A resort to liquidity by the Tether-related ecosystem could in fact cause not only the end of the decentralized sector but even the beginning of an unpleasant chain reaction of failures that could impact the real economy more than we think.


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