NIST Wants To Regulate Stablecoins For Better Safety And Security For Users

The US-based National Institute of Standards and Technology (NIST) is trying to regulate the digital space in the nation. As the Biden government is taking steps to get involved in the crypto space and currency market, NIST announced draft regulations on the stablecoin platform.

For a better understanding of stablecoin technology and its security related guidelines, NIST recently prepared a draft to ensure the safety and security of stablecoins. The researchers took 20 stablecoins as samples to examine their value stability. They also added the major components of stable coins in their report, like their smart contracts, blockchain ledgers, and digital currencies.

And the report highlighted that there are security concerns that are faced by the stablecoins, such as cyber attacks, collateral thefts, arbitrary minting, and exploiting the blockchain ledgers. NIST stated that the developers and maintainers of stablecoin have to follow certain regulations towards users and investors to maintain their safety.

The researchers suggested an easier method to regulate the stablecoin is to peg the stablecoin with fiat so it can be stored and traded on a centralized finance platform. In this research, NIST noticed that out of 20 stablecoins, the top 5 continued their peg at 87%.

The top Five stablecoins that retained their peg with 87% are as follows:

“This security analysis found that two stablecoins that function almost identically in third-party markets and enable the buying and selling of goods with coins at a pegged price can have vastly different risk profiles.”

NIST stated that there are loopholes in both centralized finance (CeFi) and decentralized finance (DeFi). In CeFi, the users must face trust issues due to the high dependency on human trustworthiness. While in DeFi, the users are facing security issues due to increasing cyber attacks on digital currency.

“As with most new technologies, regulations have not caught up with the development of digital currency or stablecoins.”

In the middle of May, the circulation of stablecoins was reduced by nearly $38 billion (USD). Still, $148.7 billion (USD) is in circulation, the majority of which is Tether, USD Coin, and Binance. Because of their decentralized structure, stablecoins are facing issues with deposits, which are not easy to acquire at interest rates on, unlike fiat deposits.