europe fear crypto - themetaeconomist

The European Union fears about financial stability. A report by The Macroprudential Bulletin

15 July 2022


The Macroprudential Bulletin from the European Central Bank had the purpose of studying 3 areas considered very important for the crypto future: the growth in relevance of stablecoin the environmental impact of cryptocurrencies as a whole (in addition to the classic BTC) and the role of the Defi.

Here we will focus on what emerged regarding stablecoins.

The report identifies some stable currencies (for now anchored to the dollar) which are interpreted as key supports for the expansion and raising of capital by the crypto world: it is through them that it is possible to move a value denominated in fiat on- chain almost instantly. A "parking lot" is defined for liquidity OUTSIDE cash. For this reason, the bulletin recognizes the potential in payments of this type of crypto, and therefore regulation is urgent.

In the last year and a half, 2 very important things have happened, first of all the CAPITALIZATION of stablecoins has gone from € 23 billion to € 150 billion, a growth greater than the growth of the market cap of the entire crypto world. The trading volumes of the stablecoins exceeded those of all other assets (€ 3 trillion per quarter on average) and almost reached the figures of the New York Stock Exchange (€ 3.1 trillion).

Analysts have identified a number of constants that are repeating themselves. Those who issue fiat-pegged currencies try to do so on an ever-increasing number of blockchains: just think of Tether, which is already native to over 12 chains, or USDC, which has overtaken USDT supply on major scalable chains (Avalanche, Solana ...)
The number of algorithmic stablecoins continues to increase despite the debacle of Terra and UST: the report, however, questions the solidity of many projects, the absence of a check and the inability of most who approach to be able to verify the reliability of a given algorithmic currency.
Therefore, decentralized stablecoins are the priority target for regulation by the EU.

Given the growth in adoption and market cap, stablecoin managers have a great responsibility. Given that any liquidations would lead to the collapse not only of the currency in question, but also to the sale of the assets they have (bonds, treasuries, etc.) which can lead to a CONTAGION EFFECT even in the traditional financial sector.

Despite what the name suggests, stablecoins are NOT stable currencies according to the report, as evidenced by the collapse of the UST and the many de-pegs (USDN, USDT, USDD).
In addition to the functionality of payments, the high market capitalization, growth trend and adoption rate also make them a direct (and decentralized) competitor to fiat currencies. This is simultaneously a huge recognition - it means that in 5 years the crypto world has been able to create an ecosystem that worries the main global financial institutions - and a declaration of hostility, given that if you actually want to switch to a CBDC system ( digital currencies of central banks) it is necessary that the stable are downsized.

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