ECB: Terra crash highlights stablecoin risk to financial stability and their current form isn’t fit for use in the real economy.
The European Central Bank (ECB) has released a report analyzing the growth of the cryptocurrency market over the past decade and the risks it poses to the existing financial system.
The ECB recommended appropriate supervisory and regulatory measures to ensure stablecoins don’t pose a risk to financial stability in European countries. However, the report did note that stablecoin penetration in the region is limited given that European payment service providers have not been very active in stablecoin markets thus far.
The European Union recently approved the Markets in Crypto-Assets (MiCa) framework that offers guidance for crypto asset service providers (CASPs) to operate within the Europe region. The provisional agreement includes rules that will cover issuers of unbacked crypto assets, stablecoins, trading platforms and crypto-wallets.
3/13 Large stablecoins will be subject to strict operational and prudential rules, with restrictions if they are used widely as a means of payment, and a cap of 200€millions in transactions/day.
— Ernest Urtasun (@ernesturtasun) June 30, 2022
The ECB aims to curtail stablecoin issuance to e-money institutions and credit institutions to ensure that a Terra-like incident doesn’t lead to investors losing billions of dollars.