“A Flight to Qualities”
When asked about the latest news of hedge funds targeting the largest stablecoin by market cap – USDT – in the wake of the collapse of UST, Jeremy Allaire did not directly comment on the incident that supposedly aimed to render the asset de-pegged from the US dollar.
Instead, he said he had witnessed “a flight to qualities” in the crypto space amid market selloffs, as investors – adopting a risk-off attitude – transferred their money from high-risk assets to stable and high-quality ones like USDC. Allaire backed up such a view by emphasizing the recently surging interest in the stablecoin:
“We’ve seen net inflows increased significantly from $48 billion USDC in circulation to now about $56 billion USDC in circulation. I think it underscores that the market is looking for where is the real risk and where the products are built on a sound regulatory footing.”
Fully backed by cash and the US short-term treasury, USDC has remained pegged to the dollar throughout the violent market crash in the past months. Meanwhile, Justin Sun’s Tron-backed stablecoin USDD has still failed to reclaim its lost peg, despite his eye-catching efforts to defend it by injecting funds to prop up the price of its sister token, TRX.
The Fed on Stablecoins
Privately issued stablecoins such as USDT and USDC are often perceived by regulators and government officials as a source of financial instability. When testifying to Congress last week, the Fed’s Chairman Jerome Powell vowed support to a Fed-supervised digital dollar like CBDC over privately issued stablecoins, stating digital dollar should be “government-guaranteed money, not private money.”
When asked how he would respond to such a hawkish view against privately issued stablecoins, Allaire said it is encouraging that the Central Bank has demonstrated interest in the field. He added that this could potentially build the technology needed for digital currencies, and it’s important to realize that privately-led innovations have been mainly responsible for the massive growth of the payment industry in the past 75 years.
“The messaging system of wires, ATMs, Credit Cards, Paypal, Stablecoins…All of these have been private-sector led, and they would continue to be.”
In this view, the key to regulating stablecoins is to dive into projects’ “underlying risk” and “safety soundness.” Overall, the development of digital currencies will continue to be driven by private-sector innovations and the open Internet, he added.