Moody's expects that the failures of Silicon Valley Bank and Signature Bank may trigger additional regulatory requirements, particularly regarding counterparty diversification. As TradFi and DeFi become more intertwined, particularly through the tokenization of real-world assets, the risk of systemic failure increases, and as a result, Moody's highlights the need for effective regulation, transparency and risk management.
Moody's believes that one potential alternative to address the shortcomings of stablecoins is bank deposit tokenization, which allows users to hold digital tokens that represent ownership of the underlying bank deposits. Tokenized bank deposits will be subject to banking regulatory standards, thereby increasing confidence in the safety of the underlying assets, although the credit risks associated with traditional banking will of course continue to exist.
Another possible alternative is a central bank digital currency (CBDC), a digital representation of fiat currency issued by a central bank. A CBDC could eliminate the need for a third-party custodian and provide direct access to central bank reserves. However, CBDC may still be years away from large-scale implementation. (CoinDesk)