Stablecoins Are Vulnerable To Regulatory Uncertainty: ECB

The coming altcoin news bring up the topic on stablecoins and their regulatory approach as recently discussed by the European Central Bank (ECB). As the bank noted, stablecoins are vulnerable and under pressure by the uncertainty of the lack of regulation.

The ECB explained all this in a new paper which was devoted to stablecoins. As the paper shows, these digital units of value are not a form of any specific currency – but rely on a set of stabilization tools to minimize fluctuations in their price.

Occasional paper: In search for stability in crypto-assets – Are stablecoins the solution? https://t.co/rwrigIfQgx

— European Central Bank (@ecb) August 29, 2019

The paper by the ECB is named “in search for stability in crypto assets: are stablecoins the solution” and notes that stablecoins are vulnerable, proposing a classification on them based on different key concepts used to keep their value stable. Specifically, the ECB noted that there are four major types of stablecoins including tokenized funds, off-chain collateralized stablecoins, on-chain collateralized stablecoins as well as algorithmic stablecoins.

The ECB data, as shared in the latest cryptocurrency news, shows that stablecoins are vulnerable – but that there are at least 54 existing projects (and their number is growing). The bank said that 24 of them are fully operational and that the total market capitalization has tripled – going from over €1.5 billion ($1.7 billion) in January 2018 to a sum of €4.
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3 billion ($4.8 billion) in July 2019.

Many best cryptocurrency news sites reported that tokenized funds are the most popular stablecoin type – which also accounts for almost 97% of the monthly volume of all stablecoin initiatives.

The report also shows that ECB is confident that stablecoins are vulnerable to uncertainties in governance and regulatory treatments. Specifically, the European Central Bank noted that the stablecoin adoption may require improvements to its governance – mostly coming from the processes of updating the smart contracts within the core of the project.

On the other hand, the altcoin news show that stablecoins with a clear governance framework are also the risk. According to ECB, they may “nevertheless be hampered by the uncertainty relating to the lack of regulatory scrutiny and recognition,” which is relevant in the event that financial institutions use the same technology for recording of traditional assets. In situation like this one, stablecoins would be redundant in the use of DLT outside crypto-asset markets, as the bank concluded.
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