Bank of International Settlements (BIS) Flags Concerns Over Stablecoins

• The report highlights the critical need for regulatory attention to address the unique dangers.
• The research raises serious concerns regarding the viability of stablecoins in the real world.

A new research report from the Bank of International Settlements (BIS) details the institution’s growing worries about the stability of stablecoins. BIS expressed serious doubts regarding their dependability as both an investment and a medium of exchange in their study report.

The research analyzes 68 stablecoins and finds that none of them, regardless of their size or backing, have maintained a continuous parity with their stated pegs throughout time.

The investigation, covering the previous decade, undermines the notion that stablecoins offer a secure and stable option within the crypto ecosystem. This research raises serious concerns regarding the viability of stablecoins in the real world since there is presently no guarantee that stablecoin issuers can completely redeem users’ stablecoins on demand.

Critical Need for Regulatory Attention

In addition, the paper identifies significant information gaps regarding stablecoins’ applications and consumers. BIS warned that it is difficult to evaluate the threats posed by these digital assets to payment systems and monetary stability without further information.

Despite stablecoins’ potential for widespread usage, BIS reported that the market saw volatility in 2022 and early 2023. The stability and expansion of the stablecoin market have been hampered by recent events, such as the decline of certain cryptocurrencies, notably TerraUSD, and the filing for bankruptcy of FTX.

Because of these changes, regulators and central banks are paying closer attention. To wrap up, the report highlights the critical need for regulatory attention to address the unique dangers presented by stablecoins.

Moreover, in the United Kingdom, discussion papers published during the first week of November indicated that the Financial Conduct Authority (FCA) would oversee the industry as a whole, while the Bank of England (BOE) would regulate “systemic stablecoins” that are widely circulated and might interfere with the economy.

The recommendations followed the recent disclosure of more extensive measures by the UK government to regulate the crypto industry.

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