New BIS Report: Crypto Stablecoins Fall Short On Redemptions

A new report from the Bank for International Settlements (BIS) has revealed a critical insight into the crypto market: no current stablecoin can guarantee full parity with its peg at all times, regardless of its size or backing type.

The report, aptly titled “Will the real stablecoin please stand up?”, categorizes stablecoins into four distinct types, including those backed by fiat currency, commodities, or other crypto assets, and assesses their stability. As the report notes, “while stablecoins backed by fiat currency, commodities, or other crypto assets have generally been less volatile than traditional crypto assets, not one of them has been able to maintain parity with its peg at all times”

Different Types Stablecoins

This finding is consistent across all stablecoin types, whether fiat-backed, crypto-backed, commodity-backed, or unbacked. The BIS report provides a detailed analysis of the stablecoin market, which has seen considerable growth since the inception of the first stablecoin.

As of the end of September 2023, there were over 60 active stablecoins, including prominent ones like Tether (USDT), USD Coin (USDC), and Binance USD (BUSD). The report classifies stablecoins into four categories: fiat-backed (examples being Tether and USD Coin), crypto-backed (like Dai and Frax), commodity-backed (such as PAX Gold and Tether Gold), and unbacked stablecoins.

The market capitalization of unbacked stablecoins, however, is significantly lower, constituting less than 1% of the total market capitalization of stablecoins by the end of September 2023. The report highlights the variations in stablecoin performance based on the currency they are pegged to.

Stablecoins pegged to the US dollar and the euro have generally tracked their pegs more effectively than those pegged to other currencies or stablecoins. For instance, stablecoins pegged to more “volatile” currencies like the rupiah, Singapore dollar, and Turkish lira have experienced larger deviations from their pegs.

Criticism On Stablecoins

The BIS report also delves into the stability of various stablecoins. It found that only seven fiat-backed stablecoins, including Tether (USDT) and USD Coin (USDC), have managed to keep their deviations from the peg below 1% for more than 97% of their lifespan. However, even these

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Author: Jake Simmons

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