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  • The European Central Bank says global stablecoins require a clear regulatory structure. 
  • The bank released a report outlining the benefits and risks of stablecoins and discussed the gaps in the current regulation. 

In a recent report about global stablecoins, the European Central Bank (ECB) pushed for clear regulatory parameters for stablecoins, citing risks and gaps in the present regulations. An excerpt from the report reads: 

In order to reap the potential benefits of global stablecoins, a robust regulatory framework needs to be put in place in order to address these risks before such arrangements are allowed to operate.

The report outlined many benefits of stablecoins, including speed and simplicity. However, it also detailed the risks associated with the currency. This included concerns regarding stability, value and possible systemic failure. The report highlighted one particular risk where users won’t be able to cash in on their exact “stable” value if the asset loses its value peg or if its backing deviates from an expected level.

There is a risk that end users will regard the stablecoin as being equivalent to a deposit, given the promise of ‘stable’ value and the possibility of converting coin holdings back into fiat currency at any time.

Depending on their type, stablecoins derive their value from a number of sources, including mainstream financial assets, crypto assets and fiat currencies, making the regulatory framework unclear. Some stablecoins might even be categorized as an investment rather than a source of stable value. The report said:

Given the complexity of its structure, a stablecoin arrangement could, depending on its specific design features, fall under one of a number of different regulatory frameworks – or, potentially, none of them.

Although the bank called for regulatory clarity, it mentioned the need for a well-rounded approach. It concluded by saying: 

To reap their potential benefits without undermining financial stability, we must ensure that stablecoin arrangements do not operate in a regulatory vacuum.