The emerging autonomy-stability choice for stablecoins

The popularity of stablecoin arrangements has triggered the attention of regulators globally (Financial Stability Board, 2020). Many have raised the importance of the solvency and transparency of stablecoin arrangements as well as the importance of their compliance with regulations aimed at financial consumer protection, investor protection, operational resilience and the prevention of money-laundering, terrorist financing and other illicit activities. Less attention has been raised to the fact that stablecoin transactions are processed by decentralized networks that may operate outside the sphere of control of the relevant authorities.This chapter focuses on the importance for the issuer of a fiat-backed stablecoin to maintain reliable access to the domestic payment system of the jurisdiction that issues the fiat currency in order to maintain a stable peg. The chapter provides several empirical illustrations that show how substantial deviations of the one-to-one peg could occur for the most prominent fiat-backed stablecoin when its access to the domestic payment system was interrupted. The chapter then discusses the implications for the extent to which regulators will be able exercise control over stablecoin issuers.