EU banking watchdog proposes liquidity rules for stablecoin issuers
The proposed guidelines are currently in the public consultation phase for the next three months, and if approved, it will come into effect starting in June 2024. The aim of the new liquidity guidelines is to ensure that the stablecoin can be quickly redeemed even during turmoil market conditions to avoid the risk of any bank runs and contagion in a crisis situation. Under the proposed liquidity guidelines, stablecoin issuers must offer any stablecoin backed by a currency that is fully redeemable at par to investors. The official proposal by EBA noted that the stablecoin liquidity guidelines will act as a liquidity stress test for stablecoin issuers. EBA believes the stress test will highlight any shortcomings and lack of liquidity for the stablecoin , which can help EBA to only approve fully backed stablecoin s with enough liquidity buffer. “The liquidity stress testing will help issuers of tokens to better manage their reserve of assets and generally their liquidity risk. Based o...