BIS Questions Stablecoins’ Reliability

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Stablecoins Under the Microscope

Recently, the Bank for International Settlements (BIS) has cast serious doubts on stablecoins. These digital currencies, designed to be as reliable as traditional money, are struggling to live up to their name. They’re supposed to be tied to stable assets like the U.S. dollar, yet they often fail to keep their value steady. This inconsistency is a major concern because if stablecoins can’t remain stable, they can’t function as reliable money.

 

Volatility Strikes

Contrary to their intended purpose, stablecoins have shown remarkable volatility. Moody’s Analytics has pointed out that stablecoins have not maintained their pegged value over 600 times in just one year. This level of unpredictability introduces a significant risk for those seeking a digital currency that they can count on to remain consistent.

 

Transparency Troubles

Moreover, the BIS that the lack of transparency regarding the reserves backing stablecoins is a pressing issue. If investors and users cannot get a clear picture of how these coins are supported, their confidence in the currency wanes. Without this trust, the entire premise of stablecoins could potentially collapse.

 

Lack of data about users & uses of makes it difficult to ascertain the risks they pose to the smooth functioning of payment systems & financial stability, which may hamper authorities’ ability to put in place effective policies and safeguards

— Bank for International Settlements (@BIS_org)

 

Stability in Question

Not So Stable After All

Speaking frankly, the BIS has declared that stablecoins are not a safe haven for value. Their research indicates that fiat-backed stablecoins have only managed to keep their value 94% of the time, which is less than the 100% stability they often promise. Crypto-backed and commodity-backed stablecoins have fared even worse, with far less reliability.

 

backed by assets denominated in fiat currency, commodities or other cryptoassets are typically less volatile than traditional . Still, none assessed in this paper have been able to maintain parity with their peg at all times

— Bank for International Settlements (@BIS_org)

A Few Exceptions

Nevertheless, it’s not all bleak. Some stablecoins, such as Tether and USD Coin, have generally succeeded in holding their value. These coins stand out as exceptions in an otherwise uncertain market. Most other stablecoins have faced more frequent and more pronounced deviations from their pegged value.

 

Accountability Issues

Furthermore, the BIS warns that some stablecoin issuers have not been diligent in getting their reserves audited by independent accountants. And for those that do, there’s no consistency in how they report their findings. This lack of standardization casts doubt on whether stablecoins can be reliably traded back to dollars at their advertised value, which is a key selling point for their use.

 

Recent Shocks

 

Circle’s USDC Wobble

In March, Circle’s USDC saw its value waver significantly. It dropped more than 10% from its 1:1 exchange rate with the U.S. dollar following issues with the Silicon Valley Bank. Fortunately, it has since managed to recover its par value, reassuring its users.

 

Terra Luna’s Fall

Additionally, in May, the Terra Luna ecosystem, which was worth a staggering $40 billion, collapsed. This disaster had a ripple effect, causing even the stablecoin giant Tether to temporarily lose its peg. However, much like USDC, Tether also managed to bounce back and restore its value to the expected level.