A stablecoin can be described as “a crypto-asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets”. The underlying mechanics of so-called stablecoins may vary and include:
- “Asset-linked stablecoins” which “purport to maintain a stable value by referencing physical or financial assets or other crypto-assets”. Examples include Tether, USD Coin, or Euro Coin.
- “Algorithm-based stablecoins” which “purport to maintain a stable value via protocols that provide for the increase or decrease of the supply of the stablecoins in response to changes in demand. Examples include DAI, and TerraUSD (which collapsed in May 20222).
However, the FSB notes that “stablecoin issuers are not subject to a consistent set of standards regarding the composition of reserve assets backing the stablecoin, and there is a lack of consistency in disclosure practices among stablecoin issuers”3, amongst other risks and vulnerabilities. (FSB: Regulation, Supervision and Oversight of ''Global Stablecoin'' Arrangements, Final report and High-Level Recommendations, 2020)
ECB: The expanding functions and uses of stablecoins, published as part of the Financial Stability Review, 2021
G7 Working Group on Stablecoins, IMF, BIS-CPMI: Investigating the impact of global stablecoins, 2019
2 Terra crisis fans regulatory concerns over $180bn stablecoin market, Financial Times, 11 May 2022, available at: https://www.ft.com/content/48d82c7a-495f-4d5e-a87a-a56bea58e760
3FSB: Assessment of Risks to Financial Stability from Crypto-assets, 16 February 2022, p. 11
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