Stablecoins Could Threaten Euro Zone Banks and Global Markets, ECB Warns

Himasha Dissanayake, JadeTimes Staff

H. Dissanayake is a Jadetimes news reporter covering Technology

---

Source: Crypto times

The European Central Bank (ECB) has cautioned that the rapid rise of stablecoins poses growing risks to both euro zone banks and global financial stability. The digital assets, designed to maintain a stable value and widely used to buy other cryptocurrencies, now exceed $280 billion in market value. Although still relatively small, the ECB stressed that the issuers of major stablecoins have become some of the largest holders of U.S. Treasuries.

In its Financial Stability Review, the ECB argued that around 80% of all trades on centralised crypto platforms rely on stablecoins. This growing dependence could threaten euro zone banks by draining retail deposits, a crucial source of stable funding. “Significant growth in stablecoins could cause retail deposit outflows, diminishing an important source of funding for banks,” the central bank warned.

The ECB highlighted that the biggest threat lies in a potential investor run. The two largest stablecoins hold reserve assets comparable to the world’s top 20 money market funds. A rapid sell-off of their reserves could lead to a “fire sale” of U.S. Treasury bills, disrupting global markets. The report added that risks could also spread into the euro zone, particularly if a jointly issued stablecoin involves both EU and non-EU entities. In such cases, stricter EU regulations could make the EU issuer disproportionately exposed to redemption demands, magnifying the danger of a liquidity crisis within the bloc.

The ECB’s warning adds to growing international debate on how to regulate digital currencies to protect financial systems as crypto markets continue to expand.