Swiss National Bank exec: Regulators may favor centralized stablecoins after Terra crisis

Swiss National Bank (SNB) deputy head Thomas Muser talked to Cointelegraph editor Aaron Wood and discussed the ongoing trends in central bank digital currencies (CBDCs), stablecoins, and regulations, during the recently concluded European Blockchain Convention (EBC) 2022.

Talking about the innovation and adoption of private stablecoins and plans of central banks regarding the CBDC launch, Moser said both could co-exist. He said that CBDC's function would be very basic and private stablecoin issuers can add services on top of them to meet retail customers' needs.

When asked about the recent collapse of the Terra’s UST and its subsequent impact on regulations, Moser said that the recent spiral crash of the Terra and its decentralized algorithmic stablecoin UST could have a lasting impact on the regulators.

He added that regulators may be forced to favor centralized stablecoins over decentralized ones although not every decentralized stablecoin is like UST. He said:

“My fear is that that, that people will throw all decentralized stable currency in the same kind of category, which is not true, you know, so there's a danger. I think that regulation will favor centralized stablecoins.”

When asked about the developments on the regulations front, Moser hinted that it could take time. He cited the example of internet regulations from the 1990s where regulators took time to come up with new rules instead of implementing the existing telephone regulations.

Related: CBDC may threaten stablecoins, not Bitcoin: ARK36 exec

Moser said, if current financial regulations are implemented in the crypto industry, the decentralized finance (DeFi) ecosystem would cease to exist. He explained:

“if you just take the existing regulation and put it on crypto then defi will disappear. Because you will only have centralized entities that you can regulate with the current regulation. For DeFi, where there is no single entity to be held accountable for, which is really just small contracts interacting, you need a different type of regulation.”

Switzerland's central bank is among the selected few that have begun the pilot for their national CBDCs, apart from China. The central bank carried out wholesale CBDC testing in January this year. Later in the same month, SNB published a report based on its trials and suggested that the risks outweigh the benefits.