A report written on behalf of Paradigm by former Federal Reserve policy analyst Brendan Malone said that stablecoins cannot be compared to bank deposits in terms of risk.
The document explores the risks that stablecoins pose to the financial system, noting that current legislative proposals in the United States could incorporate encrypted payment instruments into the existing banking and securities framework.
According to Malone, stablecoins pose less risk than bank deposits because when banks take short-term deposits and use those funds to make long-term loans that are not repaid for years, they face so-called maturity transformation.
Maturity transformation poses ongoing risks for banks requiring permanent risk management, whereas fiat-pegged stablecoins inherently pose no similar risk as their reserve assets are typically backed by short-term Treasury bills and Segregated from the issuer’s assets.