How Do You Solve A Problem Like Stablecoins? Balancing Innovation, Risk And Regulation

This article has been prepared jointly by the teams at TLP Advisors and OL Consulting

Key Takeaways

• Stablecoins are pegged to assets like fiat currencies or commodities to maintain a stable value, making them suitable for cross-border payments and decentralised finance (DeFi).
• Different stablecoin models, such as algorithmic and fiat-collateralised, come with varying levels of risk. Algorithmic stablecoins, like TerraUSD, have shown higher vulnerability, as demonstrated by TerraUSD's collapse in 2022.
• The Abu Dhabi Global Market (ADGM) focuses on fiat-referenced tokens and excludes algorithmic stablecoins. It requires a 1:1 ratio of liquid reserves in cash or liquid assets, with a minimum capital requirement of USD 2,000,000 or the stablecoin issuer's annual audited expenditure, whichever is higher.