Caveat Depositor. How Safe Is Your Stablecoin?

Frances Coppola | Yahoo Finance | Feb 8th, 2021
Category: Education

We often talk about central banks creating fiat money. In fact, most fiat money is not created by central banks but by commercial banks. Furthermore, not all of the banks that create and hold fiat money are regulated banks. Many are what we know as “shadow banks.” In the cryptocurrency network, there is a whole shadow banking industry creating and holding fiat money, or something that looks very much like it. 

Shadow banks are financial institutions that do bank-like things but aren’t subject to banking regulations. They include investment banks, non-bank lenders, money market funds, private equity and hedge funds, and insurance companies. They also include special purpose vehicles (SPVs), which are subsidiary companies created by regulated banks to enable them to do unregulated things. And they include banks headquartered outside the U.S., notably those in offshore jurisdictions.

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