Stablecoins account for less than 10 percent of the total crypto-asset market, yet the ECB says that the digital money must be regulated before it becomes too big a risk for the rest of the financial industry.
Stablecoins’ rapid growth, their increasing global use cases and the potential to spread financial risk through the crypto-asset ecosystem, all make it high time for the digital money to come under stricter regulatory supervision, the European Central Bank said in its macroprudential bulletin, issued Monday as «Bloomberg» first reported.
Crypto Liquidity
Where stablecoins once assumed the role of being a «parking space» for crypto volatility and facilitating trading in crypto-assets, they have grown to become liquidity providers in decentralized finance (DeFi) applications, the report said.
The authors of the publication fear that because of this functionality, the failure of a large stablecoin could bring parts of the traditional financial system down with it if interlinkages in the crypto-assets universe continue to grow.
Tether Dependency
Tether, USD Coin and Binance USD make up around 90 percent of the total stablecoin market with Tether having become critical in crypto-asset trading, it said.
Furthermore, the trading volumes of stablecoins surpassed those of unbacked crypto-assets last year, reaching average quarterly trading volumes of 2.96 trillion euros, almost on a par with those of US equities on the New York Stock Exchange (3.12 trillion euros), the report said.
Too Slow
The central bank also criticized digital money, finding fault in the speed and cost of stablecoin transactions, as well as their redemption terms and conditions, saying they «fall short» of what is required of practical means of payment in the real economy.
