Despite the turmoil in the cryptocurrency market, she calls for not leaving the ecosystem, while pointing out the limits of certain stablecoins.
Two weeks ago, the cryptocurrency and stablecoin ecosystem was severely disrupted, resulting in many losses for users, but also questions about the resilience of such an ecosystem.
Some senior officials took the opportunity to voice their concerns, such as Christine Lagarde, the head of the European Central Bank (ECB), who stated that cryptocurrencies “are worth nothing”.
For her part, Kristalina Georgieva, the boss of the International Monetary Fund (IMF), has a more nuanced view on the world of cryptocurrencies.
“I beg you not to withdraw” from the crypto world, Kristalina Georgieva said Tuesday at the World Economic Forum’s annual meeting in Davos. “It gives us all faster service, much lower costs and more integration, but only if we separate the apples from the oranges and the bananas,” she added, noting that the role of regulators was to educate about the different aspects of this ecosystem.
Some stable coins in the viewfinder
On the other hand, the latter is looking more critically at the collapse of the Terra blockchain’s stablecoin usd (UST).
“If we look at stablecoins, this is where the big mess happened. If a stablecoin is backed one-to-one by assets, it’s stable. If it’s not backed by assets, but promised a 20% return, is that a pyramid” (implied by Ponzi), said Kristalina Georgieva. “What happens to the pyramids? (…) They eventually fall apart”. For the latter, faced with this observation, it is necessary to regulate the stablecoin sector.
Kristalina Georgieva refers to the Anchor protocol, which runs on the Terra blockchain, which shows promises of returns of nearly 20% when users deposit their stablecoin UST there. Anchor also acts as a lending platform as it is possible to borrow the UST stablecoin by placing cryptocurrency collateral, similar to the cryptocurrency luna. When the UST and the cryptocurrency crashed, between May 7 and May 12, the latter saw $1,048 billion in liquidations.
A critical note from the ECB on Terra
Indeed, the collapse of the UST has alerted many international regulators to move towards regulating stablecoins. On Tuesday, the ECB published a review on the crypto ecosystem, pointing the finger at the Terra ecosystem and calling for faster progress towards European regulation of the ecosystem.
Like it we explain it here, a stablecoin (or stable cryptocurrency) is a crypto asset (or digital asset) that is pegged to a fiat currency such as the euro or dollar. A stablecoin can also be backed by other assets (such as gold). This is called the underlying asset of the stablecoin. When the price of the underlying asset goes up or down, the value of the stablecoin must match. The promise is to hold the parity permanently, e.g. 1 UST = 1 dollar. There are two main forms of stablecoin:
- The largest (so-called “classic”) stablecoins, which make up about 90% of stablecoin trading today, work like this: a company that issues the stablecoin (e.g. stable coins in circulation. So as a customer, dollar stablecoins are If you want to sell, there is certainly enough money in this company’s coffers to make this conversion, so it is a parity based on the supply of “real” money available to the stablecoin issuer.
- Other stablecoins, called “algorithmic”, operate with reserves placed in assets other than the underlying asset to which they are linked, such as digital assets. These algorithms should make it possible to maintain parity… At least in theory.