A non-regulatory organization operating under the United States Department of Commerce, the National Institute of Standards and Technology (NIST), issued the earliest public draft indicating diverse considerations dealing with the implementation as well as the architecture of stablecoins.
NIST Studies Stablecoins and Issues Findings on their Trust, Safety, and Security
By conducting a study over nearly twenty stablecoins during the previous year, it was discovered by NIST that the prominent stablecoins – that retained the peg thereof – denoted eighty-seven percent of the cumulative top twenty market capitalization. Among the entirety of the stablecoins, five remained successful in maintaining the pegs thereof based on their market capitalization, taking into account Frax, Dai, Binance USD, USD Coin, and Tether.
As a coincidence, the entirety of these tokens sees the USD as the provider of their peg. Apart from that, NIST pointed toward TerraUSD’s death spiral – though it is the 3rd-biggest stablecoin in terms of market capitalization – as it lost the peg in 2022’s May. The report of NIST raised some security apprehensions dealing with the arbitrary or unauthorized minting, vulnerabilities of smart contracts, collateral theft, as well as exploitation of the underlying blockchain.
Keeping in view the trust received by the issuers of stablecoins, it is suspected by NIST that the managers, maintainers, and developers of the systems of stablecoins could utilize their privileged position to deceive the holders and investors.
In the conclusive findings, the venue mentioned that the respective security analysis brought to the front that a couple of stablecoins – operating nearly in the same way in other markets and offering the selling and purchase of products at the price of their peg – can possess broadly diverse risk profiles.
The Agency Highlights the Vulnerabilities of CeFi and DeFi
As per NIST, the architecture of centralized finance (CeFi) are additionally vulnerable and cannot be trusted because of a huge dependence on the trustworthiness of humans, whereas the vulnerability of decentralized finance (DeFi) takes into account the security hazards because of the mounting complexity of the smart contract code a well as the critical functionality thereof.
On 3rd October, the motion of Celsius – to restart withdrawals to facilitate selected clients as well as to sell the stablecoin holdings in its possession – was objected to by the Department of Justice (DOJ), as per William Harrington, the DOJ’s U.S. Trustee.
