Stablecoin Parity Report: Stability Concerns for All Types
A Bank for International Settlements (BIS) report has found that no stablecoin can guarantee full parity with its peg at all times, regardless of its size or backing type. The report, titled “Will the real stablecoin please stand up?,” categorizes stablecoins into four types and analyzes their stability.
Different Categories of Stablecoins
This finding applies to all stablecoin types, including fiat-backed, crypto-backed, commodity-backed, or unbacked stablecoins. The report outlines that there are over 60 active stablecoins, with fiat-backed stablecoins like Tether (USDT) and USD Coin representing a whole lot of portion of the market.
The market capitalization of unbacked stablecoins is substantially lower, constituting less than 1% of the total stablecoin market capitalization. Furthermore, the report outlines that stablecoins pegged to the United States dollar and the euro tend to track their pegs more effectively compared to those pegged to other currencies.
Criticism of Stablecoins
In terms of stability, only 7 fiat-backed stablecoins, notably Tether (USDT) and USD Coin, have managed to sustain deviations from the peg below 1% for the bulk of their lifespan. Nonetheless, these stablecoins have occasionally failed to sustain strict parity.
The report acknowledges whole lot of barriers to redemption for average users of Tether (USDT), impacting the reliability and utility of these stablecoins. In addition, it identifies varied transparency in reporting reserve compositions between different stablecoin types, with most crypto-backed ones being opaque.
BIS’ Position on Crypto
The BIS report outlines the challenges of stablecoins in maintaining value stability and transparency in reserve holdings. The BIS has previously taken a whole lot of stance on cryptocurrency with a focus on disclosure and regulation. Major banks will be required to disclose their cryptocurrency holdings starting in 2025.
As of now, the total cryptocurrency market cap amounts to $1.359 trillion.
Hot Take: Challenges and Perspectives on Stablecoins by BIS
The BIS report outlines issues with stablecoin parity and transparency in reserve holdings, cultivating concerns over widespread stability. It paves the way for increased scrutiny and regulation in the cryptocurrency industry by major institutions, underscoring the need for accountability and reliability to restore confidence in the market.
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