Here is our pick of the 3 most important Stablecoin news stories during the week.
The world of Stablecoins goes risk off!
It seems we are all learning from recent mistakes and implementing new systems with strange names like risk management, something that Terra, Three Arrows, Voyager and Celsuis should have been doing.
First, Banking Circle, a European bank with all of the TradFi risk management systems in place that is focused on cross-border payments, is adopting a major U.S. dollar-pegged stablecoin for payment rails.
Tether’s announced that it’s Bitcoin (BTC)-denominated loan to Celsius Network has been fully liquidated without a loss, easing concerns that the stablecoin issuer may have oversized exposure to the embattled crypto lender.
In a statement issued Friday, Tether explained that its lending arrangement with Celsius prevented any downside risk to its underlying business. Specifically, the BTC-denominated loan issued to Celsius was overcollateralized by 130%, and the original agreement allowed Tether to liquidate the collateral to cover the loan.
A new initiative with a strong risk management approach was announced by Decentralized finance (DeFi) giant Aave which has unveiled plans to launch an overcollateralized stablecoin called GHO.
According to the governance proposal shared on Thursday, GHO would be an Ethereum-based and decentralized stablecoin pegged to the U.S. dollar that could be collateralized with multiple assets of the user’s choice.
To obtain GHO, users would need to mint the stablecoin against their deposited collateral. However, the list of supported collateralized assets and the collateral ratio has yet to be detailed.
As users are essentially borrowing the stablecoin against their holdings, the position will need to be overcollateralized as per any normal Aave loan.
And finally, from the TradFi world, Deputy Governor Jon Cunliffe reportedly said that the Bank of England (BoE) is unlikely to offer a digital pound that works like banknotes, opting instead for an instrument managed through some sort of account, reflecting concerns that it could be used in crime and money laundering.
The BoE plans to release a consultation paper at the end of the year about how a retail central bank digital currency (CBDC) might look. Cunliffe said it’s unlikely that any digital pounds will be issued within the next three years, that it’s more likely in five or more years.
So in summary, stablecoins are growing up, putting risk management and over collateralization systems in place and even the BoE is not rushing into anything too soon.
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years. Twitter @Alan_SmartMoney
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