According to Hong Kong’s central bank, the interconnection of crypto assets has made the ecosystem more vulnerable to systematic shocks.
According to Hong Kong’s central bank, the interconnection of crypto assets has made the crypto ecosystem more vulnerable to systematic shocks. In addition, the increase in crypto exposure from financial institutions can be subject to knock-off effects from abrupt developments in cryptocurrency prices:
The flowchart shared by HKMA suggests that fluctuations in the price of asset-backed stablecoins could result in reserve adjustment by stablecoins. This is mainly driven by the assumption that the demand and supply of stablecoins can trigger volatility in their price. The study also recalled the crash of Terra USD , an algorithmic stablecoin issued by Terraform Labs, which had caused mass redemption of Tether . In this light, HKMA recommended standardizing regular disclosures that can help regulators inspects liquidity conditions and risks.
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