European Central Bank: Stablecoins May Be Vulnerable To Regulatory Uncertainty

The European Central Bank (ECB) has recently emitted a new report on the cryptocurrency market. This time, the banking institution approached the issues with stablecoins. The latest report touches on questions such as whether stablecoins can be a solution for the volatility of the crypto market and whether or not they have dangers related to them.

This new report affirmed that stablecoins need a better governance system to be able to become more mainstream. They are also vulnerable to regulatory uncertainty, as many governments have not yet decided what to do with them.

For instance, in case a bank decided to launch a digital version of its token, a stablecoin’s existence would become redundant, as you could easily access digital fiat currency instead of having to use a private version of it.

According to the bank’s latest paper, stablecoins can be defined in four main different groups. They can be a tokenized fiat currency, on-chain collateral, algorithmic tokens or off-chain collateral. In order to study the case better, the bank selected 54 currencies. Most of them, 30, were tokenized versions of fiat, which is the most common type.

On-chain collaterized tokens and algorithmic ones were more evenly divided with 12 and 11 projects. Off-chain collaterized projects were the far less common type, as they only had a single project as their representant.

The bank has also affirmed that the most popular kind of stablecoin accounts for 97% of the category’s trading volume and that stablecoins are already a $4.8 million USD market. Their market cap basically tripled in a year and a half.

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Author: Gabriel Machado

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