Sold as Safe as the Dollar, Stablecoins Face Financial-Crisis Warning

Stablecoins are emerging as a risk to global financial markets, the Wall Street Journal reported on May 26. The tokens drew attention as a next-generation payment tool because they are pegged to the dollar and designed to reduce price volatility. But in the end, they more closely resemble privately issued money because they are created by companies rather than states.

Stablecoins are designed to maintain a value of $1 per coin, backed by safe assets such as US Treasuries or bank deposits. Tether and Circle are the best-known examples. Supporters say they enable payments that are faster and cheaper than traditional banking networks, particularly for cross-border transfers.

The core issue is trust. Unlike the dollar, stablecoins move through private platforms and blockchain infrastructure. That means the singleness of money — the principle that one dollar is always accepted as one dollar — is not fully guaranteed. In practice, coins issued by Tether and Circle also trade slightly away from their dollar pegs depending on market conditions.

The drive for profit is another risk factor. Stablecoin issuers have an incentive to offer reward programs to attract more users and raise revenue, or to invest reserves in higher-yielding assets. The Journal said that if the value of collateral assets comes under pressure, investors could rush to redeem their holdings in a so-called coin run. Forced sales of assets such as US Treasuries could then spread stress across broader financial markets.

The US introduced regulations last year through the GENIUS Act that limit stablecoin reserve assets to US Treasuries, deposits and similar holdings. The CLARITY Act, now being discussed in the Senate, is another attempt to bring stablecoins into the regulated financial system. But room remains for offshore stablecoins operating outside the rules, as well as reward programs that are effectively structured to function like interest.

It is also unclear whether stablecoins are widely used as an actual means of payment. Research from the Federal Reserve Bank of Kansas City found that most stablecoins are currently used for cryptocurrency trading, while payments tied to the real economy account for less than 1%. They have also been criticized as a tool for illicit transactions including sanctions evasion and money laundering.

Even so, stablecoins are unlikely to disappear. Financial firms and regulators are both looking for ways to incorporate them into the formal financial system. Banks have begun offering tokenized deposits as an alternative. The idea is to preserve the speed and efficiency of blockchain-based payments while maintaining the stability of dollars linked to the central banking system.

Lee Hye-in, Hankyung.com reporter hey@hankyung.com