USDT rose above its UOptimal point last week because of HTX-related withdrawals discussed in previous posts. This caused borrow rates to temporarily fluctuate, briefly rising above 15%. As a result, we recommended changes to USDT’s IR curve that were implemented, namely the reduction of Slope2 from 22.5% to 14%. To reduce interest rate volatility we propose temporary adjustments to the interest rate curves which aim to further soften the slope beyond UOptimal and reduce stress on borrowers.
- In line with this approach, the Bank will have regard to the PFMIs and the agreed responsibilities for central banks, market regulators and other relevant authorities for FMIs.
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- These assets would need to be held by issuers on statutory trust for the benefit of coinholders (in a similar legal structure to that proposed for the backing assets).
- Simply put, cryptocurrency is a digital payment system that doesn’t rely on a bank for you to make payments or verify transactions.
Prices and distribution
In reality, these could be artificially generated trying to lure you into a social media scam. Alternatively, social media influencers might tout new and potentially fake crypto and encourage users to sign up or send them payments that might multiply. Remember, the government does not regulate cryptocurrency and it’s also not yet widely accepted by businesses so you should exercise caution whenever you receive email requests for crypto payments.
- These gaps could weaken the resilience needed for systemic payment systems on which households and businesses rely.
- The way some cryptos are created and operated makes them very different from what some people would class as ‘tangible’ assets (meaning things that you can physically see and touch) like gold or cash.
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This section outlines a number of possible scenarios by which this may occur. The Bank’s proposals in this paper are intended for stablecoins used in systemic payment systems that are focused on providing payment services. As such, the regime would prevent stablecoins from performing other functions, such as lending or investment, that would otherwise pose risks to the provision of payments at a systemic scale. Stablecoins that are focused on performing functions other than, or in addition to, payments will be better captured within other regimes. It remains to be seen what the move from a 24-hour market to a business hours market will mean for crypto liquidity.
Understanding volatility: why Bitcoin is so risky
The Bank recognises that industry is already working actively on these issues and would welcome views on how such changes and/or solutions may be built in the future. However, some stablecoin payment chains using public permissionless ledgers do not evidence a single (set of) entity(ies) that can take full responsibility for ensuring the robust operation and risk management of the transfer function. Some stablecoins might start off as non-systemic, and become more widely used for payments progressively, over time.
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