Financial Stability Review – October 20254.2 Focus Topic: Recent Trends in Stablecoins and Considerations for Financial Stability

This Focus Topic discusses stablecoins, which are emerging as a potentially prominent element of the financial system with implications for financial stability. A stablecoin is a digital asset designed to maintain a stable value, typically by being pegged to a fiat currency such as the US dollar. Unlike central bank digital currencies (CBDCs), stablecoins are issued by non-government entities and typically aim to maintain their peg by holding reserves, such as deposits or government securities. Stablecoin issuers are increasingly considering use cases that extend beyond the crypto ecosystem and there is significant interest globally in the potential for well-regulated stablecoins to enhance the efficiency and functionality of a range of payment and other financial services. However, the growing use of stablecoins also presents risks, including to financial stability. These include potential disruptions to the markets of assets used to back stablecoins, shifts in the composition of bank funding and heightened operational vulnerabilities within the financial system.1

Stablecoin use is increasing globally but approaches to regulation remain fragmented.

Stablecoins are a relatively small but rapidly growing part of the financial system. As of end June 2025, global stablecoins were almost all denominated in US dollars and accounted for about US$250 billion in market capitalisation (Graph 4.2.1). This is equivalent to around 3.3 per cent of US money market fund (MMF) assets. Though currently modest, the volume of issued stablecoins has grown more than 50 per cent over 12 months to June 2025 and industry projections of growth range from US$500 billion by 2028 to US$4 trillion by the 2035.2 These projections reflect expectations of a broader adoption of stablecoins in retail and cross-border payments, and as a store of wealth, particularly from emerging markets.3 By contrast, current use of stablecoins is predominantly as a bridge in crypto assets trading.

Graph 4.2.1
A stacked bar chart showing the market capitalisation of prominent USD-denominated stablecoins over time. The chart shows the growing market capitalisation and concentration of Tether and USDC in the stablecoin market.

Landmark legislation in key jurisdictions and rapid growth have resulted in increased concerns about the implications of a fragmented approach to regulating stablecoins. Central banks and international bodies have recently intensified focus on stablecoins given their fast growth and potential implications for payments integrity, financial stability, monetary sovereignty, system liquidity, and financial fraud and crime. The European Union’s Markets in Crypto-Assets Regulation (MiCA) has come into force and foundational legislation, Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), was passed in the United States in 2025. Several other jurisdictions including Hong Kong, Singapore and the United Kingdom recently passed or have well-progressed plans to regulate stablecoins and other crypto assets.4 Though these regulations are similar in substance, a divergence in preferences appears to be emerging, with the United States favouring greater use of private stablecoins while other jurisdictions continue work on CBDCs or supporting other forms of innovation in digital payments.5 As various jurisdictions enact stablecoin regulation, policymakers globally have underlined the importance of proportionality and international coordination – to balance the potential risks and benefits from these novel products and minimise regulatory arbitrage.

Stablecoin growth could have implications for financial stability.

If stablecoins were to continue growing on their current trajectory, regulators could be faced with several financial stability considerations. The vast majority of stablecoin assets are in two USD-pegged stablecoins: Tether (US$162 billion) and USDC (US$61 billion); both of which hold most of their reserves in short-term US Treasury securities (T-bills; Graph 4.2.2). Over 2024, as Tether and USDC collectively issued $65 billion in new stablecoins, they purchased nearly $40 billion of US T-bills as backing assets, an amount similar to the largest US government MMFs and larger than purchases by most foreign countries during the period.6 Due to network effects, these early issuers are well positioned to capitalise on further growth prospects and continue to dominate a concentrated market. This raises several considerations for financial stability:

  • Backing asset markets. Stablecoins currently hold less than 2 per cent of outstanding T-bills;7 however, should stablecoins grow as projected, their holdings could become sufficiently large to materially affect the functioning of the US market for T-bills. Stable functioning of this market is critical as it serves an important function in global liquidity management and as a key interest-rate benchmark in the global financial system. A sudden decline in sentiment towards stablecoins could trigger asset fire sales with the potential to spill over into repo and other core US funding markets.
  • Composition of banks’ funding. If stablecoins are bought using funds deposited with banks, banks will need to find new sources of funding to maintain the same level of lending. Such changes in funding composition could affect liquidity management for banks, particularly in periods of stress.
  • Operational risks. Costly operational incidents could arise due to the opacity and complexity of the broader crypto and decentralised finance ecosystem. Decentralised systems may offer resilience by removing single points of failure. However, new forms of technology, including smart contracts or stablecoin infrastructure, are yet to be stress-tested, and there is likely to be limited recourse for assets lost to cyber-attacks. As stablecoins mature, interlinkages with banks and payments infrastructure are also likely to increase, meaning operational disruptions could have a broader impact on the financial system.
Graph 4.2.2
A stacked bar chart showing the composition of reserve assets held by Tether and USDC. The chart shows the significance of short-term Treasury bills in reserve holdings, both as outright holdings and collateral for reverse repurchase agreements

Endnotes

For further details, see Dark C, P Wallis, N Rowbotham and E Rogerson (2022), ‘Stablecoins: Market Developments, Risks and Regulation’, RBA Bulletin, December. 1

Jacewitz S (2025), ‘Stablecoins Could Increase Treasury Demand, but Only by Reducing Demand for Other Assets’, Federal Reserve Bank of Kansas Economic Bulletin, August. 2

Stablecoins can be an attractive store of value in emerging markets if there are large fluctuations in the value of the domestic currency or high inflation. See World Bank Group (2022), ‘What Does Digital Money Mean for Emerging Market and Developing Economies?’, Technical Note, April. 3

Bank of England (2023), ‘FCA and Bank of England Publish Proposals for Regulating Stablecoins’, News Release, 6 November; Hong Kong Monetary Authority (2025), ‘Regulatory Regime for Stablecoin Issuers’. 4

Illes A, A Kosse and P Wierts (2025), ‘Advancing in Tandem – Results of the 2024 BIS Survey on Central Bank Digital Currencies and Crypto’, BIS Papers, No 159, August. 5

Ahmed R and I Aldasoro (2025), ‘Stablecoins and Safe Asset Prices’, BIS Working Papers, No 1270, May. 6

See Jacewitz, n 2. 7