Regulators may favor centralized stablecoins after Terra crisis

Swiss National Bank (SNB) deputy head Thomas Muser spoke with Cointelegraph editor Aaron Wood and talked about the continuous patterns in reserve bank digital currencies (CBDCs), stablecoins, and policies, throughout the just recently concluded European Blockchain Convention (EBC) 2022.

Talking about the development and adoption of personal stablecoins and strategies of reserve banks concerning the CBDC launch, Moser stated both might co-exist. He stated that CBDC’s function would be extremely standard and personal stablecoin companies can include services on top of them to fulfill retail clients’ requirements.

When inquired about the current collapse of the Terra’s UST and its subsequent effect on policies, Moser stated that the current spiral crash of the Terra and its decentralized algorithmic stablecoin UST might have an enduring effect on the regulators.

He included that regulators may be required to favor centralized stablecoins over decentralized ones although not every decentralized stablecoin resembles UST. He stated:

“My fear is that that, that people will throw all decentralized stable currency in the same kind of category, which is not true, you know, so there’s a danger. I think that regulation will favor centralized stablecoins.”

When inquired about the advancements on the policies front, Moser hinted that it might require time. He pointed out the example of web policies from the 1990s where regulators required time to come up with brand-new guidelines rather of executing the existing telephone policies.

Related: CBDC may threaten stablecoins, not Bitcoin: ARK36 officer

Moser stated, if existing monetary policies are executed in the crypto market, the decentralized finance (DeFi) environment would disappear. He described:

“if you just take the existing regulation and put it on crypto then defi will disappear. Because you will only have centralized entities that you can regulate with the current regulation. For DeFi, where there is no single entity to be held accountable for, which is really just small contracts interacting, you need a different type of regulation.”

Switzerland’s reserve bank is amongst the picked couple of that have actually started the pilot for their nationwide CBDCs, apart from China. The reserve bank performed wholesale CBDC screening in January this year. Later in the very same month, SNB released a report based upon its trials and recommended that the threats exceed the advantages.