An article from the European Central Bank speculates on how stablecoins could destabilize the global economy.
A new article released by the European Central Bank (ECB) describes stablecoins as a “risk to financial stability,” claiming they are vulnerable to depegging and could adversely affect legacy financial markets in the United States and Europe.
The ECB criticized stablecoins, saying they “may pose financial stability risks through their inherent vulnerabilities and their interconnectedness with traditional finance,” citing that stablecoins could depeg if investors lose confidence in their redemption ability. The statements insinuate that, despite Circle and Tether being some of the largest holders of U.S. Treasuries, the stablecoin issuers still risk a bank run.
As a result of Tether and Circle’s large holdings, the authors claim, a run on stablecoins could “trigger a fire sale of their reserve assets” and destabilize the $25 trillion U.S. Treasury market.
It further discusses how interest-earning stablecoins, while prohibited under the Markets in Crypto-Assets Regulation (MiCA), could lead to “banking disintermediation.”
Banks in the United States are calling for similar bans due to the threat that interest-bearing stablecoins pose to their existing businesses and the potential for immediate solvency concerns, as shown by the 2008 financial crisis and previous examples of isolated bank runs.
The stablecoin market crossed $300 billion at the beginning of October, with USDT and USDC accounting for more than 85% of the total market, according to DeFiLlama.
Despite the banking sector’s calls to stymie the stablecoin industry, the United States continues to embrace the sector, riding on the Trump administration’s push to make the US the “crypto capital of the world.”
The GENIUS Act, which passed in July, aims to enhance the regulation of circulating stablecoins to mitigate risks associated with DeFi-led stablecoins and is expected to put pressure on yield-bearing stablecoins.
