Stablecoins: Not as Stable as They Seem

Japanese regulators have clarified that 'stablecoins' are not necessarily backed by law, despite their name. This is according to a recent podcast episode featuring experts in finance and blockchain technology.

The hosts discussed two types of stablecoins: one pegged to the Japanese yen, which promises 1:1 redemption, and another type that relies on specific trust receipts and uses underlying assets such as bank deposits or short-term bonds for backing. However, even with these guarantees, the value of the asset can fluctuate due to changes in interest rates, making it uncertain whether investors will receive their full value back.

The experts also pointed out that algorithmic stablecoins like TerraUSD (UST) have lost their peg to the US dollar, and this has led to significant price drops. They concluded that 'stable' does not necessarily mean the asset's value is guaranteed.