CICC: The potential risks of stablecoins themselves can affect the stability of financial markets

Zhongjin Research reported that the potential risks of stablecoins themselves can also affect the stability of financial markets. One is the risk of bank runs and liquidity. Due to the fact that stablecoins are issued by private institutions and their stability depends on the quality and transparency of their reserve assets, if the reserve mechanism is insufficient or the asset quality faces downward pressure, or if it brings about a crisis of trust, it is easy to cause a run on their holdings and sell off their assets, indirectly affecting the stability of the traditional financial system and even triggering broader liquidity risks. The second is deposit relocation and financial disintermediation. Stablecoins may create a diversion for banks' deposit/loan/remittance businesses, such as some residents in high inflation countries preferring to hold stablecoins instead of bank deposits, and stablecoin cross-border payment settlements bypassing traditional bank remittance systems. If decentralized finance continues to develop, it may even exacerbate the business loss of traditional financial institutions and trigger financial disintermediation. The third is the linkage between price fluctuations and the market. The correlation between stablecoins and the cryptocurrency market is high. At the same time, the boundary between cryptocurrency and traditional stocks is gradually blurring, showing a trend of "coin stock integration". This is reflected in the emergence of cryptocurrency assets in traditional financial markets (such as Circle and other coin stocks being listed, stablecoins and cryptocurrency related targets affecting stock prices through fundamental changes), and traditional financial institutions beginning to layout the cryptocurrency field (such as providing cryptocurrency trading services, issuing stock tokenization products, directly holding coins to participate in cryptocurrency investment, etc.), which has led to an increase in price transmission and linkage effects between the entire cryptocurrency and traditional financial markets.