The Bank for International Settlements (BIS) has examined the life span of stablecoins, assessing them as an unreliable store of value. However, the organization’s general manager believes that the future financial system will be based on central bank digital currencies (CBDC).
The BIS analysts have studied the evolution of the stablecoin market from January 2019 to September 2023, concluding that the stability of these assets is rather questionable.
They believe that stablecoins in circulation don’t meet the key criteria for being a safe store of value and a trustworthy means of payment in the real economy for two main reasons, namely:
- No stablecoin has been able to consistently maintain parity with its peg during the period studied.
- There’s no guarantee that issuers of stablecoins are able to redeem all users’ coins in full and on demand.
Data analysis revealed that fiat-backed stablecoins remained pegged to the value of the underlying asset in 94% of cases. The BIS analysts found that only seven assets of this type were able to remain relatively stable more than 97% of the time. This is, however, lower than the 100% promised by the issuers. However, stablecoins backed by cryptocurrencies and other assets held the peg ratio even less often — only 77% and 50% of the time, respectively.
Recently, Moody’s presented a new AI service to predict depegs of stablecoins, and S&P Global analysts named USD Coin (USDC) and Dai (DAI) as the most unstable stablecoins.
As for the issuers of stablecoins, the BIS analysts emphasize that the reserve audits that stablecoin issuers conduct to prove their solvency are simply not in line with the common reporting standard. Moreover, some issuers don’t undergo any audits at all.
Meanwhile, while speaking during a Swiss conference on securing the future monetary system, Agustín Carstens, General Manager of the BIS, said that CBDCs would be at the heart of the financial system. He added that this asset class is what will drive innovation and digitalization of the global economy.
Carstens also emphasized that since CBDCs would play such an essential role, ensuring cybersecurity for this asset class was a priority for the agency. CBDCs, on the other hand, must be protected not only on the technical side but also in terms of their use. That’s why Carstens said that creating a regulatory framework for these assets should be a top priority for regulators.
The CBDC platform by BIS, developed under Project mBridge for cross-border payments, is gearing up for commercial launch.
