How stable are stablecoins? Not a single stablecoin out of 68 monitored by the Bank for International Settlements has succeeded in maintaining parity with its currency peg. So what’s their utility in the real economy?

Do stablecoins live up to their name and can they serve as a reliable means of payment and store of value? Senior Economist Anneke Kosse discusses these questions based on the BIS paper „Will the real stablecoin please stand up?” She also highlights how significant data gaps regarding the users and uses of stablecoins make it difficult to ascertain the risks they pose to the smooth functioning of payment systems and financial stability.

This paper provides an overview of the evolution of the stablecoin market over the past decade and examines whether stablecoins have stayed true to their name in terms of being “stable”. By classifying stablecoins into four distinct types, the BIS paper shows that, while stablecoins backed by fiat currency, commodities or other cryptoassets have generally been less volatile than traditional cryptoassets, not one of them has been able to maintain parity with its peg at all times. This is irrespective of a coin’s size or type of backing.

„We study 68 stablecoins and show that not one of them has been able to maintain parity with its peg at all times. This is irrespective of their size or type of backing. Moreover, we argue that there is currently no guarantee that stablecoin issuers could redeem users’ stablecoins in full and on demand.” says Anneke Kosse.

„For these reasons, we conclude that the stablecoins in circulation today do not meet the key criteria for being a safe store of value and a trustworthy means of payment in the real economy.” Kosse concludes.

This paper also highlights some significant data gaps. Without further data on the uses and users of stablecoins, it is difficult to ascertain the risks of stablecoins to the smooth functioning of payment systems and financial stability more broadly.

More details: Will the real stablecoin please stand up?

___________

Stablecoins are a subcategory of cryptoassets that aim (or claim) to maintain a stable value relative to a specified peg.