Hype and stability don't often go hand in hand. But much excitement surrounds ‘stablecoins’ – crypto-assets which are pegged to real world currencies, commodities etc.
If their proponents are to be believed, and these stablecoins sidestep the extreme volatility that has plagued/stoked (delete as appropriate) other crypto-assets, then these products do start to look a bit more money-like. And if that's true, then surely these stablecoins will avoid the glare of regulatory scrutiny, right?
Well no, not exactly.
In and of themselves, stablecoins are arguably no different to other crypto-assets. They use the same technologies, can be issued by the same market players, and ultimately can present the same risks to investors (see the recent turbulence in the value of Tether, one of the best known stablecoins).
In addition, the methods that stablecoin creators use to maintain their pegs can bring them even more squarely into the perimeter of financial services regulation. Depending on the specifics of each product:
- asset-backed stablecoins may risk being characterised as fund units, transferable securities or derivatives;
- algorithmically-pegged stablecoins may be particularly susceptible to cyber-attack, and could involve the buying and selling of transferable securities in order to expand or contract the supply of the stablecoin; and
- other stablecoins have made use of trust and custody structures which are similar to those used in fund management.
On top of this, and regardless of how they are pegged, it's been reported that many stablecoins are popular amongst criminals, money launderers and tax evaders. So - hype or no hype - expect regulators to be keeping a very close eye on these.