Stablecoins Post Significant 'Trust Risks', Says Former Bank of China President

  • Former head of Bank of China recently noted that stablecoins pose "trust risks."
  • He explained that it is often difficult to verify whether a stablecoin issuer has enough real-world assets to back the number of coins in circulation.

Li Lihui, the head of the Blockchain Research Working Group at China’s Internet Finance Association (NIFA), recently stated that stablecoins pose “trust risks” as it may be difficult to determine whether these coins are actually backed by real-world assets or fiat currencies such as USD.

Former Bank Of China Head Warns Of Risks Associated With Stablecoins

Lihui, the former president at the Bank of China, noted:

The market cap of certain stablecoins stands at over $1 billion, while smaller ones have a market value of hundreds of millions of dollars. But some banking accounts linked to stablecoins lack transparency … [which may introduce] trust risks.

Lihui’s comments came during a digital financial assets forum held in Beijing where he mentioned that the high volatility of cryptocurrencies could pose risks to fiat currencies and the stability of the traditional financial system. The former Bank of China head also believes that digital currencies can only become a legitimate payment method if their blockchain networks are able to scale, have low network usage fees, are secure, and provide real-world or commercial value.

According to Lihui, the volume of fiat money to cryptocurrency transactions depends on regulatory requirements of various jurisdictions, market conditions, public sentiment, and the international status of the fiat currency in which cryptocurrencies are being bought and sold.

Lihui further noted that developed nations such as the United States and Japan have been developing progressive crypto regulations and could become as accommodating towards digital currencies as some of the smaller jurisdictions (for example, Malta and Gibraltar).

Basis Stablecoin Project Shuts Down 

As CryptoGlobe reported recently, a large number of crypto-related businesses have shut down due to the extended digital currency bear market. One of the most notable cryptocurrency projects to shut down due to regulatory uncertainty is “Basis”, an “algorithmic” stablecoin project.

After receiving investments from some of the most well-known venture capital firms in the crypto space, the Basis project was forced to “wind down and return funds to investors” due to regulatory challenges. In April, a US-based blockchain startup called Intangible Labs announced it had raised $133 million via private investments from Pantera Capital, Andreessen Horowitz, and a few other big name VC investors. At the time, Intangible Labs had said that it would be using the funds raised to launch a new stablecoin called Basis.

According to Intangible Labs’ management team, the Basis (known as Basecoin at first) stablecoin would be a new price-stable digital currency that eliminated volatility by creating an “algorithmic central bank.” As mentioned, the Basis project has reportedly been abandoned due to regulatory uncertainty in a bear market that has seen the US Securities and Exchange Commission (SEC) postpone its decision regarding the possible approval of a Bitcoin ETF and other crypto-related investment instruments.