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