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US agency NIST conducts study on stablecoins

 


The National Institute of Standards and Technology (NIST), a non-regulatory agency of the US Department of Commerce, has published a study that takes a closer look at stablecoins and their architectures.


In the corresponding study , which looked at the top 20 stablecoins over the past year, NIST comes to the conclusion that the top 5 stablecoins alone that have successfully maintained their tethering account for 87% of the combined market capitalization of the top 20 . These top 5 (value) stable cryptocurrencies are as follows (see below):

Interestingly, all five stablecoins are pegged to the US dollar and have an average minimum rate of $0.9934 (-0.66%) and a maximum minimum rate of $0.9871 (-1.29%) over the period of investigation.


In this context, NIST also points to the death spiral of TerraUSD (UST), which was the third-largest stablecoin at the time of the study before being pegged to the US dollar in May 2022. Accordingly, the analysts identify important security aspects that can lead to the instability of a stablecoin, including arbitrary minting, loss of collateral, vulnerabilities in smart contracts and oracles, and fundamental security gaps in the associated blockchain.


Given the high level of trust that stablecoin issuers naturally enjoy, NIST concludes that issuers could use their privileged status to behave maliciously or deceptively towards users. Nevertheless, the authority states:


"Our security analysis found that two stablecoins that function almost identically, allowing the purchase of products and services with coins that are pegged to a fixed rate, can have quite different risk profiles."

Comparing architectures based on classic centralized financial services (CeFi) and those based on decentralized financial services (DeFi), the researchers note that CeFi is more prone to human error due to reliance on individual actors, while DeFi through increasingly complex smart contracts tend to have technical weaknesses.

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