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.

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. 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. By contrast, current use of
stablecoins is predominantly as a bridge in crypto assets trading.

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. 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. 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. 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; 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.