KEY POINTS
  • Eswar Prasad, an economics professor at Cornell University, warned that a run on stablecoins could spill into bond markets as issuers of these types of cryptocurrencies may have to sell U.S. Treasurys to honor redemptions.
  • Issuers of stablecoins tether, USD coin and Binance USD, claim they are backed by real-world assets, including billions of dollars' worth of U.S. Treasurys.
  • Prasad said that if such a run were to occur when bond market sentiment was "very fragile as it is in the U.S. right now," there could be a "multiplier effect," thanks to large selling pressure on Treasurys.

The near $1.4 trillion collapse of the crypto market in 2022 didn't make a dent to traditional assets like stocks or to the real economy.

But one academic has warned that the failure of a major stablecoin could have an impact on the U.S. bond market, marking a potential new area that investors need to keep an eye on as contagion continues to spread across the industry.