The Stablecoin Conundrum
The Bank of International Settlements (BIS), the gatekeeper for central banks worldwide, recently dropped some serious tea on stablecoins. In their latest report from November 8, they’ve come out swinging, declaring stablecoins are not quite the safe haven they’re marketed to be. This isn’t just the typical ‘your shoes don’t match’ criticism; we’re talking about some hard numbers that might make you rethink your crypto adventures.
The Numbers Don’t Lie
Between January 2019 and September 2023, fiat-backed stablecoins managed to maintain their heroic peg—meaning they hung on to their promised value against the dollar—only 94% of the time. Spoiler alert: that’s not perfect! If you’re looking for flawless execution, you might want to check out the ratio game in the world of crypto instead. Here’s how the peg ratios fared:
- Fiat-backed: 94%
- Crypto-backed: 77%
- Commodity-backed: 50%
With those kinds of numbers, we can see why the BIS isn’t making plans for a stablecoin gala anytime soon. Only seven fiat-backed stablecoins managed to keep their deviations from the peg below 1% for more than 97% of their life spans—Tether (USDT) and USD Coin (USDC) were the shining stars in this less-than-stellar performance.
Accounting for Your Stablecoins?
Now, let’s talk about the reserve reports because that’s where the plot thickens. The BIS pointed out that some stablecoin issuers aren’t exactly rolling out the red carpet for independent audits. They don’t seek out certified public accountants to review their reserves, which sounds a bit like going on a first date without telling your mom where you’re going. For those that do, following a standard reporting system often flies out the window.
Without clear data on reserves, it’s set to become the wild west of finance—nobody really knows if these stablecoins can be converted at par when the users want their money back. Cue the dramatic music as we consider the potential chaos of a run on these assets!
Spilling the Tea on USDC
Speaking of chaos, let’s flash back to March when USDC, created by Circle, decided to take a little detour off its stable path. It depegged by over 10% after its reserves got stuck at the failed Silicon Valley Bank. The stablecoin has since managed a magnificent recovery, but the whole event served more than just a reminder to keep your money in multiple places.
The Fallout of Terra USD
Back in May, the Terra ecosystem—the darling of the crypto world—took a nosedive, leading to the spectacular collapse of its stablecoin, Terra USD (UST). Picture this: hope met chaos, and suddenly USDT couldn’t hold onto its peg either. This was like the crypto equivalent of a soap opera cliffhanger, though thankfully, USDT pulled itself back into the safe zone shortly after.
Unpacking the Risks
With all this drama, the BIS also highlighted how the lack of data about stablecoin users and their creepy usage patterns make it incredibly hard to assess the risks. Imagine trying to navigate a pitch-black room with just a candle; that’s what authorities are up against when crafting policies and safeguards. It’s all a bit of a juggling act, and the stakes are high!
