Stablecoin Reality Check: BIS Researchers Assess Their Performance

Economists from the Bank for International Settlements have stressed a pivotal requirement for stablecoins to serve effectively as a medium of exchange: they must uphold their value consistently throughout the day.

In a recently published report, analysts at the Bank for International Settlements argued that stablecoins are falling short of their designated name. According to their assessment, not a single stablecoin scrutinized in their study has successfully maintained its closing prices in accordance with its peg. Typically, stablecoins are anchored to assets like the U.S. dollar.

While stablecoins have been contemplated as a potential substitute for traditional payment methods, the report underlines a fundamental prerequisite for their practicality. Beyond merely holding their peg over an extended period, stablecoins must also retain their value consistently during daily transactions. The report suggests that this is not occurring reliably enough.

The paper delved into stablecoins such as Pax Gold, USD Coin, Tether, among others. It also made reference to the collapse of Terra's algorithmic stablecoin UST, an event that had notable repercussions on the cryptocurrency market, resulting in losses in the sector the previous year.

A prominent concern raised in the report pertains to the lack of transparency regarding the availability and quality of reserves that underpin stablecoins. This lack of clarity could undermine confidence in the reliability of stablecoins and their capacity to maintain their peg.

Moody's Analytics further emphasized this issue in a piece released on Monday. Their analysis unveiled that fiat-backed stablecoins had become untethered and lost their alignment with the assets they were linked to, occurring at least 609 times within the current year alone.

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