Top rankings for stablecoins face stricter standards from global regulator
The Basel Committee for Banking Supervision has put forth a set of new guidelines for stablecoins, with the aim of distinguishing them from more volatile cryptocurrencies like Bitcoin.
In a document released on Thursday, the committee outlines 11 standards that stablecoins must adhere to in order to be classified as Group 1b assets, which are considered to have lower risk compared to unbacked digital assets.
These standards ensure that the reserve assets supporting stablecoins are of high credit quality, have short-term maturities, and demonstrate low volatility. This move is part of the committee’s broader efforts to manage the risks associated with digital assets in the banking sector.
Cryptocurrencies such as Bitcoin are subject to the highest risk weight of 1,250%, meaning banks are required to hold capital equivalent to their exposure. However, stablecoins with effective stabilization mechanisms may receive preferential regulatory treatment as Group 1b assets. This means they will be subject to capital requirements based on the risk weights of their underlying exposures, as outlined in the existing Basel Framework.
In order to qualify for this treatment, a stablecoin must always be redeemable, ensuring that only those issued by regulated entities with strong redemption rights and governance are eligible. Stablecoins that do not meet these criteria will fall under Group 2 and face a more conservative capital treatment.
The Basel Committee emphasizes the importance of stablecoin reserves being invested in assets with high credit quality to minimize credit risk. These assets must also be protected from the bankruptcy risks of parties involved in the stablecoin’s operations.
This development comes as global rating agency S&P Global introduces a stability assessment for stablecoins, ranging from one (strongest) to five (weakest), to assess their ability to maintain their peg to underlying assets.
