BIS Report: None of the Stablecoins In the Market Allow Full Redemption

The Bank of International Settlements (BIS) has published the latest report highlighting its concerns over the current state of stablecoins in the market.

BIS Raises Red Flags on Stablecoins Stability

In their research report, BIS raised significant concerns over their stability and posed questions about their reliability as a store of value and means of payment. The paper examines 68 stablecoins and reveals that none of them have managed to maintain a consistent parity with their specified pegs over time, regardless of their size or backing.

The analysis, spanning the past decade, questions the assertion that stablecoins provide a safe and stable alternative within the cryptocurrency space. Notably, the study points out that there’s currently no assurance that stablecoin issuers could redeem users’ stablecoins fully and on demand, raising doubts about their reliability in the real economy.

Furthermore, the research paper highlights notable data gaps in understanding the uses and users of stablecoins. Without comprehensive data, assessing the risks these digital assets pose to payment systems and overall financial stability becomes challenging, noted BIS.

BIS noted that despite their potential to become widely used for payments, store of value, and unit of account, stablecoins have faced turbulence, notably in 2022 and early 2023. The crash of various cryptoassets, including TerraUSD, and the bankruptcy filing of FTX, a centralized crypto exchange, have impacted the stability and growth of the stablecoin market.

These developments have prompted increased scrutiny from regulatory authorities and central banks. The paper concludes by emphasizing the urgency for regulatory attention to address the potential risks posed by stablecoins, distinct from other cryptoassets. Additionally, central banks are intensifying their efforts to understand the implications of stablecoins, with some focusing on the development of central bank digital currencies (CBDCs).

Is BIS Favoring CBDCs More?

It seems that BIS has been stressing more about the use of central bank digital currencies (CBDCs) over stablecoins. Since the issuance of CBDCs happens through central banks they provide greater regulatory clarity.

Last week BIS chief Agustín Carstens said that CBDCs are key to innovating financial systems. During a speech at a conference on CBDCs in Basel, Switzerland, Carstens said:

“Whether in wholesale form – as a type of digital central bank reserve – or retail form – as a digital banknote – it is increasingly clear, at least to me, that these new forms of money will sit at the core of the future financial system”.

Interestingly, the BIS chief had issued red flags on the use of CBDCs, earlier this year.