Over the years, Stablecoins have gained the attention of many, yet they are still far from becoming true money.
A new report from The Bank of International Settlement’s manager explains that stablecoins are the digital assets designed to keep a stable value, and is often linked to the US dollar. He explained that they are mainly used inside the crypto system and not widely for everyday payments.
According to the manager, despite its fast growth, the stablecoin market still remains small when compared to traditional banking. Most of their activity comes from trading in crypto markets rather than real-world use or activities that involves buying goods or paying salaries.
Source: bis.org
One reason for this is trust. Digital dollar depend heavily on confidence in the systems behind them. If users lose trust, prices can shift away from their fixed value, which weakens their purpose as stable money.
Another issue is how these systems are built. Digital dollar run on public blockchains, which can face congestion, high fees, and fragmentation across different networks. This makes smooth and reliable payments harder than expected.
According to report, for any form of money to work well, it must be widely accepted and easy to use across systems. He also shared that they are not always equal in value across platforms, and moving them between networks can be very complex. This difficulty in the long run creates friction and reduces their usefulness as a simple payment method.
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There are also risks to the financial system. If people move large amounts of money from banks into stablecoins, banks could have less money to lend. This could affect loans, businesses, and overall economic growth.
In addition, stablecoins may increase financial risks during crises. If many users try to withdraw funds at once, it could trigger instability similar to a bank run. Another major concern is regulation. Stablecoins can operate outside traditional financial systems, making it harder to track illegal activities. This raises concerns about money laundering and financial security.
Finally, there are broader economic concerns. Large-scale use of stablecoins, especially those tied to foreign currencies, could weaken local currencies and reduce the control of central banks.
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