BIS Research Report Highlights Concerns with Stablecoins
The Bank of International Settlements (BIS), a coalition of the world's central banks, has raised concerns about stablecoins in its latest research report. According to the BIS, stablecoins are "not a safe store of value" due to their inconsistent peg ratios and lack of clarity surrounding reserves.
Peg Ratios Fall Short of Promised Levels
The BIS report reveals that from January 2019 to September 2023, fiat-backed stablecoins maintained their peg ratio only 94% of the time, falling short of the 100% often promised in project whitepapers. Crypto-backed stablecoins had a peg ratio of 77%, while commodity-backed stablecoins fared even worse at 50%.
Limited Success for Fiat-Backed Stablecoins
Out of the various fiat-backed stablecoins, only seven were able to keep their deviations from the peg below 1% for more than 97% of their lifespan. Tether (USDT) and USD Coin (USDC) were among the successful stablecoins, meeting this standard. However, the BIS noted that "all other fiat-backed stablecoins temporarily lost their pegs more frequently and with much larger deviations."
Concerns Surrounding Reserves and Financial Stability
The BIS also highlighted concerns regarding the lack of independent certified public accountants examining stablecoin reserves. Even when reserve reports are available, they often do not adhere to a common reporting standard. This lack of clarity raises questions about stablecoins' ability to convert users' funds at par on demand and the potential financial stability implications of a potential run.
Previous Incidents Highlight Instability
The report cited incidents where stablecoins temporarily depegged from their intended value. In March, Circle's USDC experienced a brief depegging after its reserve deposits became stuck in a failed bank. Similarly, the Terra Luna ecosystem collapsed in May, leading to the depegging of stablecoin Tether. Both stablecoins have since recovered their par value.
As the BIS raises concerns about the stability and transparency of stablecoins, regulators and investors will need to carefully consider the risks associated with these digital assets.
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