Will the real stablecoin please stand up?
The Bank for International Settlements (BIS) published a paper that provides an overview of the evolution of the stablecoin market and examines whether stablecoins are actually “stable”. It studies 68 stablecoins and shows that none of them have been able to maintain parity with their pegs at all times. Moreover, it argues that there is currently no guarantee that stablecoin issuers could redeem users’ stablecoins in full and on demand. For these reasons, it concludes that the current crop of stablecoins don’t meet the key criteria for being a safe store of value and a trustworthy means of payment in the real economy. The paper also highlights some significant data gaps. [Read more at the BIS]
EBA establishes capital requirements for stablecoin issuers
The European Banking Authority (EBA) launched consultations on draft stablecoin regulatory requirements. Smaller stablecoins must hold at least 30% of their reserves at commercial banks (for significant stablecoins it’s 60%). (A significant stablecoin is one with at least €5 billion in reserves or more than ten million users.) Also, no more than 10% can be held at one bank (5% if the bank is a small one), and deposits from a single stablecoin can’t make up more than 2.5% of a bank’s assets. There are also rules on the maturity of assets. Plus there are requirements for non cash liquid assets (government, local or quasi-government debt) and restrictions on the maximum exposure to a single issuer. [Read more, including links to the relevant EBA papers, at Finance Magnates and Ledger Insights]
Platform lending and innovation
The BIS published a paper that analyzes the effect of big tech platforms on credit markets. It finds that: “(i) platform lending serves as an instrument to price discriminate vendors with heterogenous funding needs, resulting in higher fees and below-market interest rates; (ii) platform lending can spur innovation by providing access to subsidized credit, but may be detrimental to vendors who do not borrow; and (iii) when the platform has better information it will lend only to the highest-quality vendors and at a better rate than banks, which, anticipating adverse selection effects, will not lend. The results suggest that platform lending can be socially desirable if the users would not have received funding from banks, but it has ambiguous effects otherwise.” [Read more at the BIS]
FYI here are some of my upcoming speaking engagements:
Currency Research Americas Cash Cycle & Payments Seminar (Orlando Florida on November 27-30)[Register here]
Digital Euro Conference 2024 (Frankfurt on February 29)[Register here]
*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.
Kiffmeister’s central bank digital currency monthly monitor
Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So (only) if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com
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