Federal Reserve Governor Christopher Waller has stated that the rising popularity of stablecoins, which are pegged to the US dollar, in the decentralized finance (DeFi) space could solidify the dominance of the USD as a global reserve currency.
Waller emphasized that approximately 99% of the stablecoin market capitalization is linked to the US dollar. He made these remarks at a banking industry conference on February 15th.
While some speculate that cryptocurrencies like Bitcoin might replace the US dollar as the world’s reserve currency, Waller noted that most DeFi transactions use stablecoins, many of which are tied to the USD.
In fact, most cryptocurrency assets are traded in US dollars. Therefore, any expansion of DeFi transactions is likely to reinforce the USD’s dominant role.
The two largest stablecoins by market capitalization, Tether (USDT) and USD Coin (USDC), account for 90% of the total stablecoin market capitalization, valued at $139.5 billion, according to CoinGecko.
These stablecoins play a crucial role in DeFi, providing traders with a liquid asset, largely stable in price, for on-chain activities without exposure to more volatile cryptocurrencies.
Waller highlighted that the “rapid growth” of cryptocurrencies “could reduce dependence on the US dollar” and posed a potential challenge to its international status, but he also asserted that there was “no significant erosion of the USD’s dominance.”