ECB Questions Stablecoin Stability Amidst Regulatory Uncertainties

ECB

Stablecoins are not immune to uncertainties. Those are the sentiments shared by the European Central Bank (ECB). According to the regulator, stablecoin stability could be hampered by the uncertainties stemming from the lack of regulations.

Uncertainties

The fact that regulatory pressures do affect fiat currencies is one of the tailwinds that could take a toll on the stability of stablecoins. For instance, these coins pegged on fiat currencies, such as Tether (USDT), are always subject to volatility in line with regulatory policies instituted by the FED to protect the dollar.

The ECB has since called for improvements pertaining to stablecoin governance as a way of addressing some of the uncertainties. Some of the upgrades touted touch on updating the smart contracts at the core of the projects.

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The regulator has also called for the classification of these coins based on key concepts as a way of guaranteeing their stability. In that regard, the ECB maintains that stablecoins should be classified as either tokenized funds, off-chain collateralized coins, on-chain collateralized coins, or algorithmic coins.

The sentiments come hot on the heels of the ECB raising the red flag over the risks associated with the use of stablecoins in the mainstream financial sector. Some of the concerns raised include the proliferation of money laundering activities as well as consumer protection.

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Proliferation

Amidst the concerns raised, stablecoins continue to gain traction as the cryptocurrency revolution continues to take over. Facebook launching its own cryptocurrency Libra has already affirmed the fact that cryptocurrencies are here to stay for the long haul. China is the latest country to join the cryptocurrency fray with the launch of a state-backed altcoin

According to the ECB, there are about 54 stablecoin projects, with 24 already in full operation. The market value of these coins is on the rise, thanks to their acceptance in the industry. For instance, stablecoin capitalization stood at $1.7 billion as of the start of 2018. It has since more than doubled to $4.8 billion. With the average volume of stablecoin transactions at €13.5 billion, there is no denying that they are here to stay.

Featured image: DepositPhotos © fazon1

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