FSB Chair Klaas Knot warns that crypto is nearing a 'tipping point', as stablecoins and ETFs are increasing systemic risks to traditional finance.
The Financial Stability Board (FSB) has just issued a strong warning about the potential risks from the cryptocurrency sector, particularly in the context of stablecoins and crypto exchange-traded funds becoming increasingly popular, accelerating the integration between the cryptocurrency market and traditional finance (TradFi).
Speaking in Madrid, Klaas Knot, outgoing Chair of the FSB, emphasized that although cryptocurrencies are not currently a systemic threat, this situation could change rapidly. Mr. Knot warned: “We may be approaching a tipping point,” highlighting two key factors driving this trend.
FSB Chair speaks in Madrid. Source: Youtube
The first is the proliferation of crypto ETFs, making it easier for retail investors to access the market. The second, and more serious, is the significant expansion of the stablecoin market. Stablecoins, such as Tether's USDT and Circle's USDC, are holding a large amount of U.S. Treasury bonds, creating a direct and clear link between crypto and the traditional financial system.
According to DefiLlama, the stablecoin market has surpassed a capitalization of $251 billion, large enough to cause spillover effects to the global financial market. Recent research from the Bank for International Settlements (BIS) indicates that inflows and outflows of funds into leading stablecoins can directly impact short-term U.S. Treasury yields.
Specifically, the influx of capital into stablecoins could reduce the yield on 3-month Treasury bills by 2 to 2.5 basis points (bps) over 10 days, while capital outflows could increase yields by 6 to 8 bps.
This proves that stablecoins are no longer a fringe product, but have become a significant factor in the U.S. government bond market, a crucial pillar of the global financial system. This development requires policymakers to closely monitor the situation, as Mr. Knot emphasized.
In the face of increasingly evident risks, regulatory agencies are beginning to take specific actions. Recently, the U.S. Senate conducted an important vote to discuss the GENIUS Act, a landmark bill aimed at establishing a national legal framework for USD-pegged stablecoins.
If passed, the act will create a unified regulatory framework to manage the risks highlighted by the FSB while shaping the playing field for one of the fastest-growing segments of the digital asset market.
