Key Highlights
- The ECB warns that growing stablecoins could pull deposits from eurozone banks, leaving them with riskier funding.
- A run on stablecoins could force rapid asset sales, affecting U.S. Treasury markets and spreading risks to Europe.
- Stablecoins now have a total market value of over $280 billion, mostly in U.S. dollars, with USDT and USDC making up nearly 90%.
The European Central Bank (ECB) has issued a warning that stablecoins — digital assets designed to keep a steady value, could draw deposits away from eurozone banks which over time could pose risks to financial stability.
Stablecoins now have a combined total market value of more than $280 billion. This is about 8% of the total cryptocurrency market, mostly in U.S. dollars. The largest coins, Tether’s USDT and Circle’s USDC, make up nearly 90% of all stablecoins. Both companies also hold a lot of U.S. Treasury bills. This means that problems with these coins could affect other financial markets too.
Stablecoins growing fast, dominated by a few layers
According to the ECB’s report, stablecoins are mainly used to buy other cryptocurrencies, with about 80% of trades on centralized platforms involving them. While some people use stablecoins to send money across borders, this is still small. People using them for daily payments make up only 0.5% of the total transactions which shows that everyday users are not yet the main participants.
Furthermore, the central bank warns that if stablecoins continue to grow, banks could face retail deposit outflows, which could reduce a crucial source of stable funding and leave them reliant on more volatile funding.
“Significant growth in stablecoins could cause retail deposit outflows, diminishing an important source of funding for banks,” ECB said.
Another major risk is a potential run on stablecoins. If many investors try to take their money out at the same time, the companies behind the coins might have to sell their assets fast. This could cause problems in the U.S. Treasury markets and might affect banks in Europe. The ECB also said that if a stablecoin is issued by both EU and non-EU companies, European rules might not be enough to cover all withdrawal requests.
Trust is key, risks remain despite current stability
The ECB explained that stablecoins’ safety depends on people trusting them. If this confidence drops, it could cause a run and make the coin lose its stable value. “The heavy concentration of U.S. stablecoins means the failure of just one entity could cause widespread trouble,” the bank said.
Even though these risks exist, stablecoins have not caused big deposit withdrawals in eurozone banks yet. Growth is being driven by investor interest and clearer rules, like the EU’s MiCAR law. The ECB said these developments should be watched closely to avoid financial problems in the future.
Also Read: Cross River Launches Compliant Stablecoin Payments for Onchain Finance
