The Bank of International Settlements Report on Stablecoins
The Bank of International Settlements (BIS), a coalition of the world’s central banks, recently released a report criticizing stablecoins as “not a safe store of value.” The BIS pointed out that from January 2019 to September 2023, fiat-backed stablecoins maintained their peg ratio only 94% of the time, falling short of the 100% promised in projects’ whitepapers. Crypto-backed and commodity-backed stablecoins fared even worse, with peg ratios of 77% and 50%, respectively.
The report highlighted that only seven fiat backed stablecoins have been able to keep their deviations from the peg below 1% for more than 97% of their lifespan, with Tether (USDT) and USD Coin (USDC) meeting this standard. However, BIS warned that some stablecoin issuers do not have independent certified public accountants examine their reserves.
In March, Circle’s USDC briefly depegged over 10% from its 1:1 exchange rate with the U.S. dollar after its reserve deposits became temporarily stuck in the failed Silicon Valley Bank. The stablecoin has since recovered its par value.
Hot Take: BIS Warns About Stablecoin Risks
The recent report by the Bank of International Settlements serves as a warning about the risks associated with stablecoins, particularly in maintaining their peg ratios and having transparent reserve reports. It also raises concerns about financial stability implications and potential runs on stablecoins. This calls for better oversight and regulation to ensure the stability and reliability of stablecoin projects.
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