The International Monetary Fund’s (IMF) director of monetary and capital markets, Tobias Adrian has warned that crypto projects might fall including stablecoins, as reported by Cryptoslate.
While speaking to Yahoo finance, Adrian mentioned that if a recession arises, digital assets might come under sell pressure. The IMF director said that the knock-on effect of an economic downturn could see the failure of coin offerings, as he singled out algorithmic stablecoins as particularly vulnerable.
“There could be further failures of some of the coin offerings, in particular, some of the algorithmic stablecoins that have been hit most hard, and there are others that could fail. Some fiat-backed stablecoins are backed by somewhat risky assets. It is certainly a vulnerability that some of the stablecoins are not fully backed by cash-like assets,” Adrian said.
USDD on Tron, USDN on the Near Protocol, and Ethereum’s Frax, which is partially algorithmic and partially collateralised, are the three notable algorithmic stablecoins now in use, said the report.
Adrian said that collateralised stablecoin offers are also under danger. Tether, in particular, Adrian claimed, is at risk “because they’re not supported one to one.”However, Tether has reduced its commercial paper holding by $5 billion to $3.5 billion. It declined below $1 during the terra collapse.
Furthermore, the automatic method used by algorithmic stablecoins produces more tokens when the price rises above the peg and burns more tokens when the price declines below the peg to maintain price stability.
Bitcoin topped the $24,000 level despite the US GDP contraction on Friday. Polygon rallied near 9%, whereas Uniswap zoomed 12%. Solana jumped 8% and Avalanche added 5 %. The global cryptocurrency market was trading higher at $1.10 trillion, taking the total trading volume close to $104.14 billion, as reported by coinmarketcap at 12:30 hours.