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Stablecoins’ role in crypto and beyond: functions, risks and policy

Author

Listed:
  • Adachi, Mitsu
  • Da Silva, Pedro Bento Pereira
  • Born, Alexandra
  • Cappuccio, Massimo
  • Czák-Ludwig, Stephanie
  • Gschossmann, Isabella
  • Pellicani, Antonella
  • Philipps, Sarah-Maria
  • Plooij, Mirjam
  • Rossteuscher, Ines
  • Zeoli, Pierfrancesco

Abstract

Stablecoins are in the spotlight due to their rapid growth, increasing global use cases and potential financial risk contagion channels. This article analyses the role played by stablecoins within the wider crypto-asset ecosystem and finds that some existing stablecoins are already critical to liquidity in crypto-asset markets. This could have wide-ranging implications for crypto-asset markets if a large stablecoin were to fail and could also have contagion effects if crypto-assets’ interlinkages with the traditional financial system continue rising. To date, the speed and cost of stablecoin transactions, as well as their redemption terms and conditions, have fallen short of what is required of practical means of payment in the real economy. Their growth, innovation and increasing use cases, coupled with their potential contagion channels to the financial sector, call for the urgent implementation of effective regulatory, supervisory and oversight frameworks before significant further interconnectedness with the traditional financial system occurs. JEL Classification: E42, G13, G18, G28

Suggested Citation

  • Adachi, Mitsu & Da Silva, Pedro Bento Pereira & Born, Alexandra & Cappuccio, Massimo & Czák-Ludwig, Stephanie & Gschossmann, Isabella & Pellicani, Antonella & Philipps, Sarah-Maria & Plooij, Mirjam & , 2022. "Stablecoins’ role in crypto and beyond: functions, risks and policy," Macroprudential Bulletin, European Central Bank, vol. 18.
    • Handle: RePEc:ecb:ecbmbu:2022:0018:2
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    Citations

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    Cited by:

    1. Djogbenou, Antoine & Inan, Emre & Jasiak, Joann, 2023. "Time-varying coefficient DAR model and stability measures for stablecoin prices: An application to Tether," Journal of International Money and Finance, Elsevier, vol. 139(C).
    2. Dionysopoulos, Lambis & Marra, Miriam & Urquhart, Andrew, 2024. "Central bank digital currencies: A critical review," International Review of Financial Analysis, Elsevier, vol. 91(C).
    3. Briola, Antonio & Vidal-Tomás, David & Wang, Yuanrong & Aste, Tomaso, 2023. "Anatomy of a Stablecoin’s failure: The Terra-Luna case," Finance Research Letters, Elsevier, vol. 51(C).

    More about this item

    Keywords

    crypto-assets; financial stability risk; means of payment; stablecoins;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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