Stablecoins ‘not a secure store of value’: BIS

The Bank for International Settlements (BIS), a consortium of global central banks, criticized the stablecoin as “not a store of value” in its latest research report on November 8.

Outlining the reasons, the BIS explained that from January 2019 to September 2023, fiat-backed stablecoins maintained a peg ratio of only 94%, less than the 100% often promised in project white papers. Meanwhile, the peg ratio of crypto-backed and commodity-backed stablecoins was 77% and 50% lower, respectively.

“Only seven fiat-backed stablecoins have managed to maintain a difference below 1% of the stake for more than 97% of their lifetime,” the BIS wrote. Both Tether (USDT) and USD Coin (USDC) meet this test requirement. However, “all other fiat-backed stablecoins have temporarily lost their pivots with frequent and large variances,” the financial institution continued.

The BIS also warned that some bitcoin issuers do not require independent certified public accountants to audit their reserves, and for those that do, reserve reports often do not follow standard reporting standards. “Due to this lack of transparency, it is unclear whether these stablecoins can be exchanged for users' stablecoins at will, and what the implications for financial stability may be,” the firm said.

In March, Circle's USDC savings deposit briefly swung more than 10 percent from its 1:1 exchange rate to the US dollar after it was temporarily tied up in the failed Silicon Valley bank. The stablecoin has since regained its relative value.

Lack of information about users and uses of #stablecoins makes it difficult to identify risks to payment systems and financial stability, which can hinder authorities' ability to put in place effective policies and safeguards pic.twitter.com/dAk8U4hEG1

— Bank for International Settlements (@BIS_org) November 8, 2023

Last May, the Terra Luna ecosystem collapsed after the failure of its $40 billion Terra Luna ecosystem support mechanism, the stall coin Terra Dollar. The incident led to a short-term collapse of the stablecoin Tether, which regained its relative value.

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