Bank for International Settlements warns: Stablecoins resemble securities, redemption flaws may trigger a financial run

The global stablecoin market size has surpassed $310 billion, and the Bank for International Settlements (BIS) has warned of the risks of regulatory fragmentation. Because issuers’ reserve assets are mostly U.S. Treasuries and deposits, flaws in the mechanism could trigger a bank run.

Market size surpasses $320 billion; BIS warns of fragmentation risks hidden in stablecoins

As the digital asset market rapidly expands, stablecoins are playing an increasingly important role in the financial system. According to the latest data from CoinGecko, the total global stablecoin circulating supply is currently about $315.9 billion, and tokens pegged to the U.S. dollar account for the vast majority.

On Monday, Pablo Hernández de Cos, the General Manager of the Bank for International Settlements (BIS), delivered remarks at a seminar held by the Bank of Japan, expressing deep concern about the current development trends of stablecoins. If stablecoin size continues to expand to a scale capable of rivaling traditional currencies, but lacks an effective international regulatory framework, it will have major consequences for financial stability and economic policy.

The current market structure shows a high degree of concentration. Just two issuers—Tether ($USDT) and Circle ($USDC)—account for about 85% of the global circulating market share. According to statistics, the market capitalization of Tether has reached approximately $186 billion, while Circle is about $78.8 billion.

Pablo Hernández de Cos believes that this level of market concentration reflects systemic importance, and also highlights flaws in the current stablecoin arrangements as a means of payment.

Although stablecoins have advantages such as fast cross-border transfers and the ability to integrate with smart contracts, there is still a huge gap between their operating mechanism and true money. Global legislative bodies must strengthen cooperation to prevent regulations in different countries from becoming fragmented; otherwise, it will lead to severe market fragmentation and provide room for companies to carry out regulatory arbitrage.

Stablecoins are increasingly more like securities; flaws in redemption mechanisms could trigger a bank run

Regarding the nature of stablecoins, Pablo Hernández de Cos offered the following view: The current stablecoin operating model is more like an investment product or an index exchange-traded fund (ETF); in nature, it leans toward securities rather than traditional currency.

During the redemption process in the primary market, issuers often impose fees or specific restriction conditions, and prices in the secondary market frequently deviate from the $1 peg. These “redemption frictions” prevent stablecoins from staying stable during stress periods in the same way traditional fiat currencies do. Because stablecoin issuers typically hold short-term government bonds and bank deposits as reserve assets, this structure harbors significant contagion risk.

Once the market experiences large-scale withdrawals, issuers may be forced to sell reserve assets in markets that are already under strain in order to meet redemption demand, thereby transmitting funding pressure to the banking system. This chain reaction is similar to the Silicon Valley Bank-style runs that occurred in 2023, and could impact the broader financial market.

In addition, BIS is also paying attention to the potential weakening effect of stablecoins on monetary and fiscal policies. If people shift large amounts of bank deposits to stablecoins when interest rates are high, banks’ funding base will be destabilized. To reduce such risks, some policymakers are considering restricting stablecoin interest payments, or allowing compliant issuers to access central bank lending facilities or mechanisms similar to deposit insurance, so as to maintain digital payment functions while ensuring safety.

Regulatory rule progress diverges; decentralized wallets become an illegal financing loophole

Although major economic entities around the world are pushing forward stablecoin regulatory frameworks, progress is uneven and there is a lack of unified standards. Recently, the Chair of the Financial Stability Board (FSB), Bank of England Governor Andrew Bailey, mentioned that the process of setting international rules has stalled.

In the United States, Congress is moving forward with the CLARITY Act. The bill has passed the House and is currently under consideration in the Senate, led by the Senate Banking Committee Chair Tim Scott and the Senate Agriculture Committee Chair John Boozman. Although some senators have reached compromises on stablecoin yield issues, there are still disagreements regarding the regulation of decentralized finance (DeFi) and professional ethics standards.

Pablo Hernández de Cos specifically pointed out that stablecoin usage on public, permissionless blockchains and in non-custodial wallets involves a large amount of activity that is largely outside traditional anti-money laundering (AML) and counter-terrorist financing (CTF) monitoring. Unless specific safeguards are implemented at on-off ramps, stablecoins can easily become tools for illegal flows of funds.

This cross-border flow characteristic means that a single country’s regulatory efforts have little effect. If regulatory frameworks across jurisdictions have gaps, issuers may move their operations to regions with more lenient oversight. This “regulatory competition” would make illicit financial activities harder to track and would not be able to effectively eliminate risks.

European and U.S. countries accelerate their deployments; the fight over fiat-backed stablecoins is on the line

Against the backdrop of increasingly strict regulation, European countries are actively adjusting their strategies. French Finance Minister Roland Lescure said that the euro stablecoin market is currently extremely small relative to the U.S. dollar stablecoin market, and that this situation is not satisfactory. He urged the European banking industry to expand the issuance of euro-denominated stablecoins and tokenized deposits to reduce reliance on foreign-currency assets.

Denis Beau, Deputy Governor of the Banque de France, suggested that the EU should further revise the Markets in Crypto-Assets Regulation (MiCA) to limit the use of non-euro stablecoins in everyday payments, reducing regulatory arbitrage during stress periods. At the same time, Switzerland’s banking industry, such as UBS, has already launched a Swiss franc stablecoin pilot in early April 2026, attempting to bring blockchain-based payments into a regulated financial system.

Although regulators are worried on the regulatory front, the level of stablecoin use in the real world continues to rise. According to a BVNK survey covering 15 countries and more than 4,600 respondents, 54% of people held stablecoins in the past year, and 56% plan to obtain more.

For some freelancers or e-commerce sellers, stablecoin payments account for 35% of their annual income. This practical demand is driving more possibilities for currency-pegged stablecoins. Circle CEO Jeremy Allaire noted that the yuan stablecoin has huge opportunities, and predicted that China may launch related products within the next 3 to 5 years, even though Chinese authorities currently strictly prohibit offshore issuers from issuing yuan-pegged stablecoins. The future development of stablecoins is at the intersection of technological innovation and a confrontation over global financial security.

• Related news: Circle CEO: The yuan stablecoin hides huge business opportunities; predicts China will launch one within 5 years