A recent report by the Bank for International Settlements raises concerns about stablecoins’ ability to maintain parity with their pegged assets, challenging their stability and reliability as a digital currency.
In a recent report by the Bank for International Settlements (BIS), stablecoins, a type of cryptocurrency pegged to assets like the U.S. dollar, are under scrutiny. The report asserts that these digital assets fail to consistently maintain their value in parity with their underlying assets, contrary to what their name suggests.
The BIS examined various stablecoins, including Pax Gold, USD Coin (USDC), and Tether (USDT), and cited the notable collapse of Terra’s UST, which had significant repercussions in the cryptocurrency market last year. Stablecoins are often considered a potential alternative payment method due to their theoretically stable value.
However, the BIS report emphasizes that for stablecoins to be effective as a medium of exchange, they must consistently hold their value throughout the trading day, a condition not reliably met according to their findings.
Adding to the concerns, Moody’s Analytics highlighted in a recent article that fiat-backed stablecoins have depegged from their associated assets over 600 times within the year. This volatility undermines the fundamental concept of stablecoins and presents a challenge for users seeking a stable digital currency.
The report points out that the main issue may lie in the opacity surrounding stablecoins’ reserves—the quality and availability of these reserves are crucial for trust in their stability. The BIS suggests that without adequate transparency and regulation, the credibility of stablecoins and their ability to maintain their peg can be significantly compromised, casting doubt on their viability as a secure digital currency.