No Stablecoin Fully Stable, Says New BIS Study
A recent report from the Bank for International Settlements (BIS) titled “Will the real stablecoin please stand up?” reveals that no current stablecoin in the cryptocurrency market can consistently guarantee full parity with its peg, regardless of its size or backing type.
The report categorizes stablecoins into various types, including fiat, commodity, or other crypto asset-backed, and highlights their inability to maintain constant parity with their respective pegs.
Stablecoin Varieties Examined
The BIS report’s findings apply uniformly to all categories of stablecoins, encompassing those backed by fiat, cryptocurrencies, commodities, as well as those without any backing. It offers an in-depth examination of the stablecoin sector, which has expanded significantly since the launch of the first stablecoin.
By September 2023, the stablecoin landscape comprised over 60 active variants, including well-known ones such as Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
The report segments stablecoins into four distinct groups: those backed by fiat currencies (like Tether and USD Coin), those backed by other cryptocurrencies (such as Dai and Frax), those backed by commodities (examples being PAX Gold and Tether Gold), and stablecoins that lack any backing.
Market Share of Unbacked Stablecoins
As of September 2023, the market capitalization of unbacked stablecoins represented a minor fraction, accounting for less than 1% of the total stablecoin market capitalization. This finding is detailed in the BIS report, which also explores how stablecoin performance varies depending on the currency they are pegged to.
Stablecoins tied to major currencies like the US dollar and the euro have shown a higher tendency to closely follow their pegs compared to those linked to other currencies or stablecoins.
Notably, stablecoins pegged to currencies perceived as more volatile, including the Indonesian rupiah, Singapore dollar, and Turkish lira, have shown greater fluctuations and deviations from their intended pegs.
Stability Analysis of Various Stablecoins in BIS Report
The BIS report presents an in-depth analysis of the stability of different stablecoins. It notes that among fiat-backed stablecoins, only a select few, such as Tether (USDT) and USD Coin (USDC), have successfully maintained deviations from their peg below 1% for over 97% of their existence. However, even these stablecoins have occasionally experienced lapses in maintaining exact parity.
The report highlights the fluctuations of Tether since 2020, with its largest negative and positive end-of-day deviations from the peg recorded at -$0.018 and $0.012, respectively. More striking are Tether’s intraday price swings, which have seen extremes of 13% below and 11% above its peg since 2020.
Further scrutiny reveals that Tether imposes significant redemption restrictions, including a minimum redeemable amount of $100,000, a 0.1% redemption fee, and a one-time verification fee of $150. Such barriers, the BIS report suggests, limit the accessibility and effectiveness of stablecoins for the average user.
Transparency in Stablecoin Reserves
The BIS report also examines the transparency levels within the stablecoin market as of September 2023. It notes that while issuers of the largest fiat-backed and commodity-backed stablecoins have been open about their reserve compositions, many crypto-backed stablecoins remain non-transparent regarding the size and breakdown of their reserves.
The report underscores that only a minority of stablecoins provide regular updates on their reserves, with some, like TrueUSD (fiat-backed), offering daily disclosures of their reserve holdings.
In contrast, others such as Tether and USD Coin are less consistent, with reports on their reserves appearing quarterly or sporadically. This variance in transparency practices is a key focus of the BIS’s analysis, highlighting the diverse approaches within the stablecoin sector.
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