![]() First, it analyses the importance of stablecoins within wider crypto-asset markets before going on to examine whether they fulfil the requirements of practical means of payment in the real economy. This article discusses the financial stability implications of stablecoins stemming from their current role in the crypto-asset ecosystem. Stabilisation tools include reserve assets against which stablecoin holdings can be redeemed, as used by so-called collateralised stablecoins, and algorithms that match supply and demand to maintain a stable value, as used by so-called algorithmic stablecoins. Stablecoins are digital units of value that rely on stabilisation tools to maintain a stable value relative to one or several official currencies or other assets (including crypto-assets). Their reserve assets (in the case of collateralised stablecoins) give them a direct link to the traditional financial sector, which warrants policymakers’ attention. However, events in early May showed that stablecoins may not be so stable after all. They were developed to address the high price fluctuations of unbacked crypto-assets such as bitcoin and ether, and their comparatively low price volatility predestines stablecoins for a number of functions where this property is needed. Stablecoins are a segment of the wider crypto-asset ecosystem along with what is often referred to as unbacked crypto-assets. Stablecoins are currently in the spotlight of policymakers due to their rapid growth, increasing global use cases and potential financial risk contagion channels. Their growth, innovation and increasing use cases, coupled with their potential contagion channels to the financial sector, call for the urgent implementation of effective regulatory, supervisory and oversight frameworks before significant further interconnectedness with the traditional financial system occurs. To date, the speed and cost of stablecoin transactions, as well as their redemption terms and conditions, have fallen short of what is required of practical means of payment in the real economy. This could have wide-ranging implications for crypto-asset markets if a large stablecoin were to fail and could also have contagion effects if crypto-assets’ interlinkages with the traditional financial system continue rising. This article analyses the role played by stablecoins within the wider crypto-asset ecosystem and finds that some existing stablecoins are already critical to liquidity in crypto-asset markets. Stablecoins are in the spotlight due to their rapid growth, increasing global use cases and potential financial risk contagion channels. Prepared by Mitsu Adachi, Pedro Bento Pereira Da Silva, Alexandra Born, Massimo Cappuccio, Stephanie Czák-Ludwig, Isabella Gschossmann, Georg Paula, Antonella Pellicani, Sarah-Maria Philipps, Mirjam Plooij, Ines Rossteuscher and Pierfrancesco Zeoli Stablecoins’ role in crypto and beyond: functions, risks and policy ![]()
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