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STABLECOINS: The banking collateral as a trap for stablecoins
The potential and risks of decentralized ledger technology are too great for us to afford to make mistakes.
Stablecoins emerged with the proposal to offer stability within the crypto universe. In theory, each unit should maintain a 1-to-1 parity with fiat currencies such as the dollar, euro, or real, allowing the investor to have predictability of value and ease of transition between the traditional and digital systems.
The problem lies in the so-called banking collateral. Many of these stablecoins maintain deposits in financial institutions as collateral, which, in turn, operate under the fractional reserve system. This means that the bank does not keep all the money it receives in full: only a fraction remains in cash, while the rest is lent or allocated to risky assets.
This model creates a contradiction. If the value of the stablecoin depends on immediate conversion to fiat currency, but the bank that supposedly backs it does not have full liquidity, a systemic risk arises: in crisis scenarios or runs on withdrawals, there would not be enough resources to honor all withdrawals.
In other words, what should bring security can, in practice, reproduce the same fragility of the traditional banking system, precisely what decentralized technology was born to overcome.
$BTC
$ERA
The potential and risks of decentralized ledger technology are too great for us to afford to make mistakes.
Stablecoins emerged with the proposal to offer stability within the crypto universe. In theory, each unit should maintain a 1-to-1 parity with fiat currencies such as the dollar, euro, or real, allowing the investor to have predictability of value and ease of transition between the traditional and digital systems.
The problem lies in the so-called banking collateral. Many of these stablecoins maintain deposits in financial institutions as collateral, which, in turn, operate under the fractional reserve system. This means that the bank does not keep all the money it receives in full: only a fraction remains in cash, while the rest is lent or allocated to risky assets.
This model creates a contradiction. If the value of the stablecoin depends on immediate conversion to fiat currency, but the bank that supposedly backs it does not have full liquidity, a systemic risk arises: in crisis scenarios or runs on withdrawals, there would not be enough resources to honor all withdrawals.
In other words, what should bring security can, in practice, reproduce the same fragility of the traditional banking system, precisely what decentralized technology was born to overcome.
$BTC
$ERA
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