Regulators may favor centralized stablecoins after Terra crisis

Swiss National Bank Deputy Head Thomas Moser talked to Cointelegraph editor Aaron Wood and discussed the ongoing trends in central bank digital currencies (CBDCs), stablecoins and regulations during the recently concluded European Blockchain Convention 2022.

Moser talked about the innovation and adoption of private stablecoins and central banks’ plans regarding CBDC launches, saying both could co-exist. He said that the function of CBDCs would be very basic and that private stablecoin issuers could add services on top of them to meet retail customers’ needs.

When asked about the recent collapse of Terra’s TerraUSD (UST) and its subsequent impact on regulations, Moser said it could have a lasting impact on regulators.

He added that regulators may be forced to favor centralized stablecoins over decentralized ones, although not every decentralized stablecoin is like UST. He said:

“My fear is […] that people will throw all decentralized stable currency in the same kind of category, which is not true, you know, so there’s a danger. I think that regulation will favor centralized stablecoins.”

When asked about developments on the regulations front, Moser hinted that it could take time. He cited the example of internet regulations from the 1990s, where regulators took the time to come up with new rules instead of implementing the existing telephone regulations.

Moser said that if current financial regulations are implemented in the crypto industry, the decentralized finance (DeFi) ecosystem would cease to exist. He explained:

“If you just take the existing regulation and put it on crypto, then DeFi will disappear because you will only have centralized entities that you can regulate with the current regulation. For DeFi, where there is no single entity to be held accountable for, which is really just smart contracts interacting, you need a different type of regulation.”

Switzerland’s central bank is among the select few countries that have begun piloting their national CBDCs, carrying out wholesale CBDC testing in January. Later that month, the Swiss National Bank published a report based on its trials and suggested that the risks outweigh the benefits.