The expansion of the cryptocurrency market over the past ten years and the threats it poses to the current financial system has been examined in a report published by the European Central Bank (ECB). The report’s section on stablecoins covered its crucial position in the present ecosystem. Stablecoins are vital in providing liquidity to the decentralized finance (DeFi) ecosystem and are increasingly used to connect multiple blockchain networks. The report also considered whether these stablecoins would fit into the established financial system. Still, it concluded that the recent failure of algorithmic stablecoin ecosystems like Terra and a lack of regulatory oversight point to the potential adverse effects of stablecoins on the financial system. ECB Rejected Stablecoins Stablecoins were also rejected by the ECB as a viable payment option, citing that their speed, cost, and redemption terms and conditions have shown them to be “inadequate for use in unreal economy payments.” To ensure that stablecoins don’t endanger the financial stability of European nations, the ECB suggested implementing the proper supervisory and regulatory measures. Nevertheless, the survey did point out that stablecoin adoption in the area is only somewhat widespread because European payment service providers haven’t been very active in stablecoin marketplaces up to this point. Market in Crypto-Assets (MiCa) The Markets in Crypto-Assets (MiCa) framework,...
