To reduce the risk of a 'coin run' that may occur with stablecoins, there are claims that issuers should limit interest payments and enhance the safety of reserve assets. Given the nature of stablecoins, there is a high possibility that crises could spread to other virtual assets, leading to calls for regulations to secure the stability of the entire system.

Sebastian Zelzner, an instructor in management technology and economics at ETH Zurich, emphasized on the 18th at the Digital Currency session of the World Economists Conference (ESWC) held at COEX in Seoul that 'issuers of stablecoins should be prevented from paying interest to investors.'

Sebastian Zelzner, a lecturer at ETH Zurich's Department of Management, Technology, and Economics, is presenting at COEX in Gangnam, Seoul, on the 18th. /Courtesy of Choi On-jeong.

According to him, if competition among issuers intensifies, stablecoins that offer interest will lead the market, which can undermine the original function of 'maintaining stable value' and increase the risk of depegging. This could ultimately expand the instability of the entire virtual asset market.

Zelzner noted that similar regulatory discussions are ongoing in major countries, citing the 'Genius Act' in the United States and the 'MICA' in the European Union as examples. Notably, prominent stablecoins like Tether and USDC also maintain a structure that does not pay interest.

He also suggested that issuers should be allowed to impose certain restrictions on redemptions, as a massive demand for redemptions due to external shocks could sharply decrease the value of the coins. However, he added that 'unlike bank deposits, stablecoins have a secondary market, so even with redemption limits, investors have some room to secure liquidity.'

Iñaki Aldasoro, an economist at the Bank for International Settlements (BIS), who presented in the same session, raised concerns about the composition of reserve assets held by issuers. He stated that '100% of the reserve assets of stablecoins should be held in safe assets like short-term government bonds or cash,' adding that 'low-quality assets are highly volatile and lack liquidity, exacerbating depegging risks.'

Aldasoro warned of the risks by mentioning actual cases. During the bankruptcy of Silicon Valley Bank (SVB) in 2023, USDC experienced depegging, resulting in a chain reaction affecting the stablecoin FRAX, which relied on it as collateral. The Luna ecosystem also faced the collapse of TerraUSD due to the rapid value fluctuations of its collateral assets.

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