‘Primitive’ stablecoin lacks mechanisms that maintain fiat stability: BIS


17 Nov 2023 10:02 PM

A study released by the Bank for International Settlements identified weaknesses in private stablecoins and suggested a model like that of the Regulated Liability Network in their place....

  • A study by the Bank for International Settlements (BIS) suggests that stablecoins lack mechanisms for money market stability and regulatory control.
  • Stablecoins bridge on-chain and off-chain funds and maintain parity with fiat USD through reserves, overcollateralization, and/or algorithmic trading protocols.
  • However, stablecoins mistakenly assume solvency based on short-term liquidity, which may not guarantee long-term demand.
  • Stablecoins are tied to the fiat money market and lack mechanisms to maintain stability during economic stress.
  • Bridges between stablecoins and other cryptocurrencies are problematic, as they struggle to absorb imbalances in order flow.
  • The study proposes the Regulated Liability Network as a model solution, involving a fully-fledged banking system with central bank involvement.

The article presents a critical view of stablecoins, highlighting their weaknesses and the need for regulatory control. The sentiment is negative towards stablecoins, emphasizing their lack of stability mechanisms.

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You May Ask

What mechanisms do stablecoins use to maintain parity with fiat USD?How do stablecoins mistakenly assume solvency based on liquidity?What challenges do stablecoins face in maintaining stability during economic stress?What is the proposed solution to the difficulties faced by stablecoins, according to the study?Why has the Bank for International Settlements been paying increased attention to stablecoins?

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