Eclipsing the pyramid: stablecoins and settlement
Skip to main content
- A “settlement eclipse” occurs when a transfer system grows large enough to occult the settlement function of a superior layer of the monetary pyramid.
- A “settlement eclipse” presents benefits, particularly reducing costs for private institutions, but also risks regarding financial stability, settlement certainty, and monetary policy transmission.
- Stablecoins capacity to circulate globally without redemption results from the combination of three features: a digital bearer claim, a digital platform enabling peer-to-peer transfer, and a secondary market ecosystem.
- These three features constitute the “settlement eclipse” potential of stablecoins. Their regulatory treatment should consider this structural aspect.
A “settlement eclipse” occurs when the settlement function of a layer of the monetary pyramid is occulted by the layer beneath it. It arises when a financial institution or a payment and settlement system internalizes transfers at sufficient scale. This paper formalizes this concept, discusses its consequences and applies it to stablecoins. The capacity of stablecoins to circulate globally without redemption has an “eclipsing” potential. This property results from the combination of three features: a bearer claim; a digital platform enabling peer-to-peer transfers; and a secondary market ecosystem. These features make stablecoins simultaneously more operationally autonomous from the traditional monetary pyramid and more structurally concentrated. The paper also examines policy options and the potential emergence of a tokenized monetary pyramid. Whether that pyramid acquires a direct public anchor or remains structurally subordinate to the traditional one is an institutional and political choice rather than a technological one, with direct consequences for financial stability, monetary policy transmission and the distribution of systemic risk.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.
