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Last week the National Institute of Standards and Technology, also known as NIST, released the report IR 8408: Understanding Stablecoin Technology and Related Security Consideration draft for the public comment period that ends January 6th, 2023. To NIST's credit, the report was extremely thorough totaling 60 pages, and not only explains the different stablecoins but also provides examples and coins that are already out there. From reading the report I and others at my office got the message from NIST that the term stablecoin has been used too broadly and that could be causing an issue in itself.
The report reviewed the top 20 stablecoins by market capitalization over the course of the year ending August 15, 2022. As a report should it does start out pretty broad informing readers about these 20 coins stating that not only did the vast majority of these coins retain their peg but that within the top 20 coins the top 5 represent 87% of the top 20s total market capitalization. stating the vast majority retained their peg. The top 5 to maintain their peg where
USD Coin (USDC)
Binance USD (BUSD)
Dai (DAI)
Fraz (FRAX)
It is my understanding that NIST began working on this report in or around May of this year. With this in mind and with how May was the month before the stablecoin market really went through it the report consistently circles back to this date and the positions that different stablecoins were in then along with their market cap. While this report was not solely about TerraUSD I was interested in how it would handle this subject.
From the report, NIST identifies TerraUSD, the number 3 stablecoin at the time, as one that is not expected to recover from its de-pegging. It mentions how several have de-pegged only to re-peg later on but not TerraUSD. When the report reaches the Terra question it does an amazing job of breaking down the taxonomy of the different types of stablecoins. These types include fiat-backed, crypto-backed, non-currency asset-backed, algorithmic, hybrid, and private institutional.
Of the 20 top stablecoins, only two were purely algorithmic coins which initially caught me off-guard. Those two coins TerraUSD and Neutrino both lost their pegs and Neutrino actually has lost and regained its peg three times this year already. Instead of coming out against these coins, NIST highlights how these might not be good for people to invest in long-term due to the peg issue. The most important thing to note though is that NIST does not take one side of the other on if these are good or bad investments and if they should be banned or regulated rather it just states the facts.
The detail that this report goes into is expanse and does highlight different things that couple cause issues long-term for stablecoins like dynamic interest rates since some issues use loans to issue the stablecoin, governance token devaluation, transaction price costs, and native currency devaluations. All of these could cause issues and while I did not see anything about it stablecoins on Solana could really be faced with significant hurdles due to network outages.
For us PUBLISH0X users I want to note that AMPL made an appearance in this report as well! It was used as an example for an Algorithmic Non-Collateralized rebasing stablecoin. The report highlighted key aspects of the underlying idea and that is not tying the value to exactly $1 as other stablecoins do. NIST highlights as well that with coins like Ampleforth regulatory accessibility is low because based on its setup and design it does not need human intervention beyond dependence on an oracle feed! Since I tend to read a lot of these reports it was really nice to see this coin get a little time to shine!
Overall the report was super balanced highlighting both pros and cons of each type and listed examples even if there were not any located within the top 20 at the time. Hopefully, Members or their staff take time to read through this before rushing to judgment. In some ways, it actually does counter a lot of what the Chairwomen and Democratic party wanted in the Stablecoin Bill and that could be vital to really get the drafts changed into something that would be not only fair but allow the industry to continue to grow and develop.
Please know I am not a financial advisor and make sure you do your own research! If you enjoyed this article and would like to support me further below are a few referral links that if you used when signing up I would appreciate it! Also, follow me on Twitter @Cje95_
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