European Central Bank voices concern over stablecoins

The European Central Bank (ECB) isn’t too confident about the ability of stablecoins to function in a financial world. The concerns aren’t necessarily founded on the premise that the digital currency options aren’t viable but, rather, lack of international regulations is going to cause issues. If that’s the case, the solution seems to be fairly simple.

The ECB released a study (in pdf) on stablecoins yesterday, describing the digital currency as a form of digital units of value. The study – called “In search for stability in crypto-assets: are stablecoins the solution?” – was built entirely around stablecoins and concludes that different stablecoin projects need to be classified differently based on the key features that make them stable. The bank believes that four classifications are needed, tokenized funds, off-chain collateralized stablecoins, on-chain collateralized stablecoins and algorithmic stablecoins.

It further asserts, “The stabilisation mechanism at the core of a stablecoin initiative is crucial to determining whether the units issued can maintain a stable value or not. Different stabilisation mechanisms may either require the intervention of accountable institutions, in the role of issuer and custodian, or delegate these tasks to stablecoin users.”

Ultimately, it doesn’t appear that the ECB, unlike many in the financial industry, believes stablecoins are necessarily evil; just that more guidance is needed. It shows concern for a project’s ability to game the system because of the lack of regulatory oversight, which might allow certain projects to become a little too financially creative. It adds that even those with an ethical framework are at risk and that these could “nevertheless be hampered by the uncertainty relating to the lack of regulatory scrutiny and recognition.”

There are around 54 stablecoin projects in some sort of development. Of these, 24 are already operational, according to the ECB’s study. The total market cap for the segment was $1.7 billion in January of last year, but has tripled since then and has now reached $4.8 billion as of last month. The average volume of transactions during the period hovers at around $15 billion, making it a perfect target with a lot of potential for the criminally inclined and the morally weak.