BIS exposes the underlying issues of stablecoins: using U.S. Treasuries as reserves, with poor transparency, and redemption risks hanging overhead. If regulators don't coordinate globally soon, the offshore dollar fire might burn back to the homeland.

BIS Working Paper No. 170 states that the rapid expansion of stablecoins, dominance of the US dollar, reserves mainly in U.S. Treasuries, and varying levels of transparency pose redemption risks. On-chain circulation combined with off-chain reserves forms an offshore US dollar vehicle, impacting value storage and cross-border payments, with limited disruption to pricing functions. Future scenarios include niche markets, digital dollarization, and integration of local currency stablecoins. Regulation requires global coordination, cross-border cooperation, strengthened domestic defenses, and efforts to combat money laundering.