Stablecoins — digital currencies designed to maintain a stable value — may lead to significant withdrawals from retail bank deposits in the eurozone, according to the European Central Bank’s latest financial stability review. Any broadening of these trends could have far-reaching consequences for global financial markets, the ECB warns in the report cited by Reuters and Agerpres.
Typically pegged to the US dollar, stablecoins have surged in popularity, gaining further momentum after President Donald Trump signed legislation in July establishing a regulatory framework intended to reinforce the dollar’s status as a global reserve currency.
Read also: European Banks Launch Their Own Euro-Denominated Stablecoin
Their total market value now exceeds 280 billion dollars — still modest in global terms, but notable given that issuers are among the largest purchasers of US Treasury bonds.
While stablecoins were initially promoted as tools for cross-border payments or as a store of value, the ECB highlights that their dominant use is within the crypto ecosystem: around 80% of transactions executed on centralized platforms involve stablecoins.
“The substantial growth of stablecoins could lead to significant outflows from retail deposits, reducing an important funding source for banks and leaving them with more volatile financing,” the ECB notes.
Main concern: possible pressure on the US bond market
The institution warns that large-scale investor exits could force stablecoin issuers to rapidly liquidate the assets backing these currencies. “Large-scale stablecoin redemptions could lead to urgent sales of reserve assets, impacting the US bond market,” the ECB states.
Risks may also spill over into the EU. When a stablecoin is jointly issued by an EU entity and a non-EU entity, investors might prefer the European branch for redemptions due to stricter EU rules. The ECB cautions that EU-based issuers could end up with insufficient reserve assets to meet combined redemption requests, potentially amplifying fire-sale risks within the European Union.
Photo: Crypto Slate
