Laura Zhao

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Staff analytical notes

Potential benefits and key risks of fiat-referenced cryptoassets

Staff Analytical Note 2022-20 Hugh Ding, Natasha Khan, Bena Lands, Cameron MacDonald, Laura Zhao
Cryptoassets that reference a national currency (commonly known as stablecoins) aim to peg their value to the reference currency and typically use a reserve of traditional financial assets to maintain the peg. The market value of these fiat-referenced cryptoassets has grown more than thirtyfold between early 2020 and mid-2022. We explore some of their potential benefits and key risks.

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Staff discussion papers

Stablecoins and Their Risks to Financial Stability

Staff Discussion Paper 2022-20 Cameron MacDonald, Laura Zhao
What risks could stablecoins pose to the financial system? We argue that the stabilization mechanisms of stablecoins give rise to the risk of confidence runs, which can propagate to broader cryptoasset markets and the traditional financial sector. We also argue that stablecoins can contribute to financial stability risks by facilitating the buildup of leverage and liquidity mismatch in decentralized finance. Such risks cannot be addressed by ensuring the price stability of stablecoins alone. Finally, we explore the potential implications of stablecoins for the current system of bank-intermediated credit and for monetary policy.

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