Stablecoin-Related Risks

Context

With the adoption of Seablocks' dynamic asset allocation methodology, stablecoins such as USDC have been incorporated into the backing asset composition. While these assets provide stability and capital efficiency, they introduce additional risks associated with fiat-backed and Real World Asset (RWA)-backed stablecoins. These risks are generally disclosed by their respective issuers.

For example, risks associated with USDC are outlined in Section 13 of the USDC Terms.

Risks Associated with Centralized Stablecoins

Centralized stablecoins like USDC and USDT introduce risks that differ from crypto-native assets. These include:

Custodial Risk: Stablecoin reserves are held in regulated bank or trust accounts that are susceptible to censorship, regulatory intervention, and counterparty risk.
Dependence on Traditional Banking Infrastructure: Centralized stablecoins rely on banks and payment processors, which are subject to country-specific regulations that may evolve unpredictably.
Unsecured Credit Exposure: Holders of centralized stablecoins effectively take an unsecured credit position on both the issuer and the banking institutions where the reserves are held. For instance, the Silicon Valley Bank (SVB) collapse demonstrated the risk of banking institutions utilizing reserves in lending activities.
Confiscation & Regulatory Constraints: Some stablecoins that distribute yield based on RWA-backed reserves are particularly vulnerable to asset freezes and legal interventions.

Due to these inherent risks, Seablocks' dynamic allocation methodology prioritizes stablecoin exposure only during periods of market distress where preserving liquidity and protecting the Reserve Fund take precedence over other allocation strategies. By maintaining a measured allocation and continuously monitoring the regulatory and banking landscape, Seablocks ensures that stablecoin-related risks remain controlled and mitigated.

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Last updated 1 month ago

Context

For example, risks associated with USDC are outlined in Section 13 of the USDC Terms.

Risks Associated with Centralized Stablecoins

Centralized stablecoins like USDC and USDT introduce risks that differ from crypto-native assets. These include:

Custodial Risk: Stablecoin reserves are held in regulated bank or trust accounts that are susceptible to censorship, regulatory intervention, and counterparty risk.

Dependence on Traditional Banking Infrastructure: Centralized stablecoins rely on banks and payment processors, which are subject to country-specific regulations that may evolve unpredictably.

Unsecured Credit Exposure: Holders of centralized stablecoins effectively take an unsecured credit position on both the issuer and the banking institutions where the reserves are held. For instance, the Silicon Valley Bank (SVB) collapse demonstrated the risk of banking institutions utilizing reserves in lending activities.

Confiscation & Regulatory Constraints: Some stablecoins that distribute yield based on RWA-backed reserves are particularly vulnerable to asset freezes and legal interventions.