Bank for International Settlements (BIS) Study
A recent study released by the Bank for International Settlements (BIS) highlighted the lack of crucial mechanisms that guarantee money market stability in fiat when it comes to stablecoins. The study suggests that the operational model of a central bank would be superior to private stablecoin due to the regulatory control it can provide. The authors used a “money view” of stablecoin and an analogy with onshore and offshore USD settlement to probe the weaknesses of stablecoin settlement mechanisms. The study also pointed out the importance of central bank credit in maintaining stability in global dollar settlement and provided examples from the financial crisis of the late 2000s. The study highlighted the dependence of stablecoins on maintaining par among themselves and the challenges they face with blockchain bridges and higher interest rates.
Regulated Liability Network Solution
The study proposed the Regulated Liability Network as a model solution to the difficulties faced by stablecoins. In this model, all claims are settled on a single ledger inside a regulatory perimeter, involving a fully-fledged banking system that includes the central bank. This system would provide the credibility that private crypto stablecoins currently lack.
Increased Attention and Legislative Focus
The BIS has been paying increased attention to stablecoins, as shown by its recent study and the growing legislative focus on stablecoin regulation in the European Union, United Kingdom, and United States. This attention reflects the increasing role of stablecoins in finance.
Hot Take
Overall, the BIS study sheds light on the limitations of stablecoins and offers a solution through the Regulated Liability Network model. With increasing regulatory focus, stablecoins may need to evolve to meet the requirements of a stable and credible financial system.
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