WORKING PAPER 03/2024 Stablecoins: Business Model, Systemic Risks and Policy Perspectives

In particular, it is unclear how the rules on general intangibles operate with tokens, as these rules assume the validity of a generic security interest, the possibility of selling collateral in the ordinary course of business and the continuity of the security interest over the proceeds. [...] For example, in the bankruptcy case of the crypto firm Celsius, the US Court concluded that ownership of the tokens held had passed to the firm and therefore the tokens are part of the insolvency estate – a conclusion based on the specific language used in the contracts.4 That has set a precedent for determining the ownership rights of tokens in future bankruptcy cases involving crypto firms. [...] Further, as the location of the distributed ledger where the tokens are located is not established, the jurisdiction where the disputes to the rights over the stablecoins held is to be settled is unclear. [...] As noted earlier, the lesson from the GFC was that the uncertainty surrounding the valuation of hard-to- value collateral assets used in lending, the inappropriate haircuts on them (making the price of collateral assets information sensitive), and the use of omnibus accounts to hold customer balances were key drivers of the risks leading to the bankruptcy of Lehman Brothers, which subsequently led. [...] Regulatory authorities across many jurisdictions are acutely aware of the inherent risks, and as the issuance of stablecoins grows to support the growth in the broader crypto asset markets, the risk of a stablecoin run of a large issuer can have material impact on the real economy.