Stablecoins, a type of digital currency pegged to a fiat currency like the USD, are facing challenges in maintaining stability and regulatory control, according to a study by the Bank for International Settlements (BIS). The study highlights the weaknesses of stablecoin settlement mechanisms, drawing parallels with the Eurodollar and foreign exchange markets. Unlike fiat currencies, stablecoins lack mechanisms to protect their value during economic stress or maintain liquidity. The study also points out that stablecoins are dependent on the stability of the fiat money market, making them vulnerable to market conditions. Additionally, stablecoins struggle to maintain parity with each other and face difficulties in bridging on-chain and off-chain funds. The study suggests that a regulated liability network, involving a fully-fledged banking system with central bank involvement, could provide a solution to the challenges faced by stablecoins. The BIS has been closely monitoring stablecoins and their increasing role in finance, as evidenced by previous studies and legislative attention in various countries.

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Information	Details
Geography	Europe
Countries	🇺🇸
Sentiment	neutral
Relevance Score	1
People	None
Companies	Federal Reserve, Bank for International Settlements (BIS), Regulated Liability Network, Silicon Valley Bank (SVB)
Currencies	US Dollar, USDC, eurodollar
Securities	None