Stable Coins: Understanding the Risks and Opportunities in a Transitioning Financial System

The Rise of Stablecoins and Their Double Role in Global Finance

Stablecoins have established themselves as a key component of the crypto ecosystem, serving as a bridge between the volatility of traditional cryptocurrencies and the stability of fiat currencies. These digital assets, by anchoring their value to tangible reserves such as foreign currencies or commodities, promise financial inclusion and transactional agility. However, this same innovative nature creates vulnerabilities that global monetary authorities are beginning to monitor with increasing attention. The analysis of stablecoins reveals a complex phenomenon: tools with transformative potential, but also vectors of systemic risk that require careful regulation.

Impact on Traditional Banking Architecture: A Transition Scenario

The proliferation of stablecoins presents a subtle challenge to the conventional banking model. As consumers shift resources from traditional deposits to stable digital currencies, financial institutions face growing pressure on their funding flows. European monetary authorities express legitimate concern: if this migration accelerates, banks may see their credit intermediation capacity constrained, indirectly affecting real economy financing.

Beyond this structural issue, the operational speed of stablecoins introduces a new dynamic. Near-instantaneous, borderless transactions multiply the possibility of sudden capital movements. Unlike traditional banking systems, where regulatory oversight and inherent delays act as shock absorbers, stablecoins allow mass redemptions at unprecedented speeds. This feature, beneficial for efficiency, becomes problematic in scenarios of financial panic.

Mass Redemptions: An Imminent Systemic Risk

The most concerning scenario for the global financial system involves mass redemption runs on stablecoins. These assets are typically backed by reserve portfolios—often U.S. Treasury bonds, bank deposits, or high-liquidity equivalents. In a large-scale redemption situation, issuers would be forced to liquidate these reserves rapidly, potentially triggering tremors in bond markets and affecting the stability of the entire system.

Recent history provides instructive examples. The collapse of TerraUSD in 2022 served as a clear warning about the fragility of poorly designed models. This algorithmic stablecoin, which relied on complex mechanisms instead of real assets to maintain parity, suddenly lost its value. The cascade effect was catastrophic: widespread panic, massive financial losses, and destruction of trust. This episode underscores a fundamental truth: not all stablecoins are born equal, and the lack of proper regulation amplifies extraordinary risks.

The Dollar Hegemony in Stablecoins: Geopolitical Implications

A notable feature of the current market is concentration: stablecoins denominated in U.S. dollars (USDT, USDC and similar) account for approximately 84% of the total global supply. This dominance reflects the dollar’s position as the international reserve currency, but creates problematic externalities. For economies outside the dollarized zone, particularly in Europe, this concentration raises questions of monetary sovereignty. The widespread adoption of American stablecoins could gradually undermine the euro’s role in global trade flows, reinforcing American monetary hegemony.

Stablecoins in Practice: Dominance in Crypto Trading, Limited Adoption in Payments

In cryptocurrency markets, stablecoins have already achieved a dominant position. About 80% of transactions on centralized exchanges involve stablecoins as intermediaries. Their relative stability makes them the ideal vehicle for trading volatile crypto assets, creating a deep and liquid market.

In contrast, adoption in retail and cross-border payments remains marginal. Barriers are multiple: regulatory uncertainty, merchant reluctance, competition from established payment systems. For stablecoins to advance as a widespread means of exchange, these frictions must be addressed through technological innovation combined with regulatory clarity.

Regulatory Milestones: Building Security and Transparency

Regulatory response has begun to take shape. In Europe, the Markets in Crypto-Assets Regulation (MiCA) represents a structured effort to manage risks. Its provisions include transparency requirements on reserve assets, prohibition of interest payments on stablecoins (eliminating speculative incentives), and ongoing operational supervision. These measures aim to preserve the stability function of stablecoins while mitigating dangerous procyclical behaviors.

The implementation of MiCA is seen as significant progress by monetary authorities. However, a critical gap remains: the absence of cohesive regulations globally. Without international coordination, issuers may exploit regulatory arbitrage, migrating operations to jurisdictions with looser oversight. This vacuum creates opportunities for evasive behaviors that reintroduce systemic risks.

Europe’s Response: The Digital Euro on the Horizon

To counterbalance dependence on dollarized stablecoins, European authorities are advancing in developing a digital euro. Pilot tests are scheduled to begin in 2027, creating a public alternative to private solutions. A digital euro would offer inherent security (guaranteed by the central bank), enhanced transactional efficiency, and would preserve European monetary sovereignty against dollar drift.

The success of this initiative is not guaranteed. It requires mass adoption by consumers and merchants, seamless integration with existing financial infrastructures, and public trust in the platform. But conceptually, it represents the recognition that stable digital currencies are the future—the question is who issues them and under what terms.

Lessons Learned and the Need for Robustness

Historical failures of stablecoins teach a simple lesson: inadequate reserve management and opaque operations are seeds of disaster. Algorithmic stablecoins—those that replace tangible assets with complex mathematical mechanisms—have proven particularly fragile. Their vulnerability to speculative attacks and market volatility demonstrates that innovation without solid foundations is dangerous.

The industry must learn: resilient stablecoin models require substantial reserve assets, rigorous operational transparency, and ongoing regulatory oversight. Responsible issuers and prudent system design are the cornerstones of a trustworthy crypto ecosystem.

Global Coordination: Imperative for Stability

Stablecoins operate in a borderless digital space, making international regulatory coordination not just desirable but essential. Regulators across jurisdictions must establish uniform standards—from reserve criteria to transparency practices—avoiding the regulatory “race to the bottom” that would weaken the entire architecture.

This coordination has profound geopolitical implications. How the world regulates dollarized stablecoins influences the balance of global economic power. Unbalanced approaches could exacerbate inequalities between nations, while smart coordination can create space for inclusive financial innovation.

Perspectives: Innovation Within Prudent Limits

Stablecoins will remain transformative forces in the financial landscape. Their potential to improve financial inclusion and payment efficiency is real. At the same time, the systemic risks they pose demand serious regulatory responses.

The path forward requires balance: enabling responsible innovation while establishing safeguards against dangerous behaviors. Frameworks like MiCA and initiatives like the digital euro represent progress, but only cohesive global regulation will provide true security. As the industry evolves, stakeholders must maintain this commitment: stablecoins as useful financial tools, not vectors of systemic instability.