Stablecoins: Promises vs. Reality: BIS report

Overview: The paper examines the evolution of the stablecoin market over the past decade and investigates whether stablecoins have truly lived up to their name in terms of stability. Stablecoins are a subcategory of cryptoassets designed to maintain a stable value relative to a specified peg.

Key Findings:

1. Classification of Stablecoins:

    The authors classify stablecoins into four distinct types:
   • Those backed by fiat currency.
   • Those backed by commodities.
   • Those backed by other cryptoassets.
   • Algorithmic stablecoins (not backed by any specific asset).
     
     

2. Volatility and Parity:

    While stablecoins backed by fiat currency, commodities, or other cryptoassets have generally been less volatile than traditional cryptoassets, none of them has consistently maintained parity with their pegs. This lack of consistent parity holds true regardless of a coin’s size or type of backing.
   
   

3. Redemption Uncertainty:

    There is currently no guarantee that stablecoin issuers can redeem users’ stablecoins in full and on demand.
   
   

4. Not a Safe Store of Value or Trustworthy Means of Payment:

    Due to these factors, the stablecoins in circulation today do not meet the key criteria for being a safe store of value or a reliable means of payment in the real economy.
   
   

5. Data Gaps:

    The analysis highlights significant data gaps regarding the uses and users of stablecoins. Without better data, assessing the risks posed by stablecoins to payment systems and financial stability remains challenging.
   
   
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In summary, stablecoins have not consistently delivered on their promise of stability, and their suitability as a reliable form of payment and store of value remains questionable. For more details, you can refer to the full article here.

Download the BIS report/Paper: BIS Papers