The Bank for International Settlements (BIS), the world’s central bank alliance, criticized stablecoins as “not a secure store of value” in its latest research Report The date is November 8th.
Outlining the reasons, the BIS explained that from January 2019 to September 2023, fiat-backed stablecoins maintained their peg ratios only 94% of the time, below the 100% often promised in project white papers. Meanwhile, cryptocurrency-backed stablecoins and commodity-backed stablecoins have much lower peg ratios, at 77% and 50% respectively.
“Only seven fiat-backed stablecoins have been able to maintain deviations from their peg below 1% for more than 97% of their lifetimes,” BIS wrote. Tether (USDT) and USD Coin (USDC) both meet this test criteria. However, “all other fiat-backed stablecoins temporarily lose their pegs more frequently and with greater deviations,” the financial institution continued.
The Bank for International Settlements also warned that some stablecoin issuers do not invite independent certified public accountants to review their reserves, and for those that do, reserve reporting often does not follow common reporting standards. “Due to the lack of clarity, it is unclear whether these stablecoins will be able to be exchanged for users’ stablecoins at face value on demand and what impact that potential operation would have on financial stability,” the entity said.
In March, Circle’s USDC briefly decoupled from its 1:1 exchange rate with the U.S. dollar by more than 10% after its reserves were temporarily stranded at a failed Silicon Valley bank. The stablecoin has since regained its face value.
Lack of data on users and usage #stablecoin Difficulty identifying the risks they pose to the smooth functioning of payment systems and financial stability, which may hinder the ability of authorities to develop effective policies and safeguards pic.twitter.com/dAk8U4hEG1
— Bank for International Settlements (@BIS_org) November 8, 2023
Last May, the $40 billion Terra Luna ecosystem collapsed due to the failure of the support mechanism for the stablecoin Terra USD. The incident briefly caused the stablecoin Tether to decouple, and the coin returned to face value.
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