The New York Fed released a report this month on the impact of digital assets on financial stability. The report concluded that, due to the limited size of the industry, risks have been minimal so far. However, if the industry grows larger, it could pose risks to the broader financial system. It identified many of the risks outlined in previous reports, but with some nuances. The report mentioned that digital assets have experienced significant booms and busts, with several factors exacerbating price volatility. These include funding risk or run risk. A range of digital asset participants have encountered runs, including CEXs, cryptocurrency lending institutions, stablecoins, and even DeFi protocols. Additionally, the industry has employed high leverage, which exacerbates other risks, and the crypto ecosystem is highly interconnected. The report noted that the lack of a strong and cohesive regulatory environment would amplify these vulnerabilities, partly because many cryptocurrency entities are based overseas or entities like DAOs lack clear legal status. Given that the focus of the assessment is financial stability, the New York Fed did not overly emphasize the threat of stablecoins to monetary singularity, but rather specifically focused on the interconnectedness that stablecoins have within the crypto ecosystem and the mainstream economy. The report stated, "They seem to not only exacerbate the instability of the digital ecosystem but also pose systemic risks." The report posits that if stablecoins have poor asset liquidity or longer maturities, maturity transformation may occur. It acknowledged that the asset quality of large stablecoins has improved over time. However, 15% of Tether's assets remain relatively risky. The ease of switching between stablecoins may amplify stablecoin run risks. Decentralized stablecoins, such as DAI (now USDS), are considered riskier because DAOs take longer to respond. Regarding interconnectedness, stablecoins are used in lending protocols, so a run on stablecoins would lead to users withdrawing loans, causing borrowing rates to rise sharply. The report also noted that if large stablecoins suddenly liquidate a significant amount of U.S. Treasury bonds, this could affect mainstream financial markets.