As the Financial Stability Board (FSB) (2021) observed in Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements: Progress Report on the implementation of the FSB High-Level Recommendations, “At present, stablecoins are being used primarily as bridge between traditional fiat currencies and other crypto-assets, which in turn are primarily held and traded for speculative purposes” (p.1)
Stablecoins still playing the role of haven in the cryptocurrencies world currently. As the largest capitalization stablecoin, it will be a tragedy if Tether breaks out confidence risk. Thus, the Zeke Faux’ investigation that @jmcgirk posted in the comment of On the Economic Design of Stablecoins aroused concerns again.
While I don’t argue that we must tame these wildcats by over-tax to diminish them, moderate regulations are required. FSB’s recommendation and implementation of jurisdictions are notable.
Recently, Bank for International Settlements (BIS) released Application of the Principles for Financial Market Infrastructures to Stablecoin Arrangements (2021). According to its considerations for determining the systemic importance of a Stablecoin Arrangement (SA), Tether may be considered as systemic important at least because of its size and being used in cross-border payments. If so, being a SA, Tether has a much longer way to go to meet the requirements BIS set, including providing clear and direct lines of responsibility and accountability, developing appropriate risk-management frameworks, aligning technical settlement and legal finality, providing the transparency and remedy policies of settlement gaps, and the most related to the discussion in On the Economic Design of Stablecoins, “no credit or liquidity risk”, which requires transparency of its reserve to the public as the first step. When we are discussing what’s the truth behind its reserve sources and it’s still buzzing, it’s quite far from the needed confidence degree of a systemic important financial infrastructure.
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