What Is the Risk of Using an Uncollateralized Stablecoin for Futures Settlement? ⎊ Path

What Is the Risk of Using an Uncollateralized Stablecoin for Futures Settlement?

The primary risk is a de-peg event, where the stablecoin loses its intended $1 value. This can lead to a sudden and massive shortfall in margin and settlement value, potentially causing cascading liquidations and systemic failure on the exchange.

Without real assets backing it, the stablecoin’s value relies solely on an algorithmic or trust mechanism which can fail under stress. This creates counterparty risk for all traders involved in the futures contract.

What Are the Risks of Using Bilateral (Non-Cleared) Derivatives Compared to Centrally Cleared Ones?

What Are the Risks Associated with the CCP Itself Becoming Financially Distressed?

How Does the Redemption Mechanism Support a Stablecoin’s Peg during High Demand?

What Is the Difference between Physical and Cash Settlement in Futures, and How Does Stablecoin Usage Relate?

How Does the Lack of Traditional Regulatory Oversight Affect Crypto CCPs?

How Does an Algorithmic Stablecoin Maintain Its Peg without Collateral?

What Is the Systemic Risk Associated with a Major Stablecoin Losing Its Peg?

How Do Clearing Houses Mitigate Systemic Risk in Standardized Derivatives Trading?

Glossar

Uncollateralized Stablecoin

Algorithm ⎊ The Uncollateralized Stablecoin relies entirely on a complex Algorithm to manage supply and demand dynamics, attempting to maintain a price peg through automated open market operations.