ECB Advisor Warns Stablecoins Could Destabilize European Banking System with 769.56% Market Cap Surge by 2028

Jürgen Schaaf, an advisor to the European Central Bank (ECB) on market infrastructure and payments, has issued a stark warning about the growing influence of stablecoins in Europe. He argues that unregulated adoption of these digital assets could destabilize the banking system by siphoning deposits away from traditional institutions, undermining their role as financial intermediaries. According to Schaaf, stablecoins are evolving from niche products to significant players in the financial ecosystem, with the potential to disrupt credit availability and destabilize the Eurozone’s banking framework [1].

Schaaf highlighted in a recent article that stablecoins are increasingly integrated with traditional finance, creating systemic risks. A collapse in the stablecoin sector, he noted, could trigger widespread contagion, as the technology becomes more deeply embedded in financial markets. This concern is amplified by the GENIUS Act, which he suggests could accelerate stablecoin adoption due to its lenient regulatory approach. The advisor forecasts that the stablecoin market cap might surge from $230 billion in 2025 to $2 trillion by 2028, a projection based on current trends and legislative developments [1].

The integration of stablecoins by major players in the financial and retail sectors further underscores the potential risks. Companies like Visa and Mastercard are already incorporating stablecoins into their payment rails, while retailers such as Walmart and Amazon are exploring their use for transactions. If stablecoins evolve into widely adopted yield-bearing instruments, Schaaf warns, they could directly compete with European private banks, which rely heavily on customer deposits for refinancing. This shift could weaken the banking system’s resilience and reduce the availability of credit, particularly in Europe, where banks play a central role in the economy [1].

ECB President Christine Lagarde has echoed these concerns, rejecting the idea of stablecoins as a form of money. She emphasized that their adoption risks transferring monetary control from public institutions to private entities, effectively privatizing a public good. Lagarde’s stance aligns with broader regulatory skepticism in the EU, where policymakers are grappling with how to balance innovation and financial stability [1].

Schaaf’s analysis reflects a growing unease among central bankers about the dual nature of stablecoins. While they offer efficiency and accessibility, their unregulated growth could erode trust in traditional banking systems and create vulnerabilities. The ECB’s caution contrasts with some market optimism about stablecoins as a tool for financial inclusion. However, Schaaf stresses that without robust oversight, the risks of systemic disruption—such as bank runs or liquidity crises—could outweigh the benefits. His forecast of exponential market growth underscores the urgency of addressing these challenges proactively [1].

The ECB’s warnings highlight a critical debate: how to harness the potential of decentralized finance while safeguarding the stability of existing financial systems. As stablecoins become more sophisticated, regulators face the challenge of designing frameworks that mitigate risks without stifling innovation. For now, the ECB’s stance suggests that Europe may prioritize regulatory caution over rapid adoption, prioritizing financial stability in an increasingly digital economy [1].

Source: [1] ECB Advisor: Stablecoins Risk Upending the European Banking System (https://api.news.bitcoin.com/wp-json/bcn/v1/post?slug=ecb-advisor-stablecoins-risk-upending-the-european-banking-system)