Stablecoins: The Next Liquidity Crisis or a New Engine for Global Finance?

The stablecoin market has seen explosive growth, with total market capitalization nearly doubling in the past year to $280 billion, according to recent market data [1]. This growth is largely attributed to the increasing adoption of stablecoins in cross-border transactions, treasury management, and as a complement to central bank digital currencies (CBDCs). Stablecoins, which are digital currencies pegged to traditional fiat currencies like the US dollar, are backed by reserves such as cash and short-term US Treasuries [2]. This structure enables them to maintain stability while leveraging blockchain technology for fast, secure, and efficient transactions.

Binance, one of the leading players in the cryptocurrency exchange space, has significantly contributed to this market boom, fueling a surge in stablecoin liquidity. Analysts project that the stablecoin market could reach $1.2 trillion by 2028, driven by both institutional and retail adoption [1]. This potential expansion is underscored by the fact that stablecoins are increasingly being used by major financial institutions like JPMorgan Chase, which has issued its own stablecoin for real-time, on-chain settlement between institutional clients. Such developments signal a broader acceptance of stablecoins within traditional financial systems [3].

The rapid growth of stablecoins has raised concerns about liquidity risks. Christine Lagarde, President of the European Central Bank, has warned that stablecoins pose significant liquidity risks, which could jeopardize financial stability. She emphasized the need for robust regulatory frameworks to mitigate these risks, especially in light of the 2008 financial crisis, where similar liquidity issues led to widespread panic. In response, the European Union introduced the Markets in Crypto-Assets (MiCA) regulation, which aims to provide a comprehensive framework for stablecoin issuance and operations [4]. Meanwhile, the United States passed the GENIUS Act, stipulating conditions for reserves, stability, and oversight of stablecoin issuers [1].

Despite regulatory efforts, the debate over stablecoins continues. On one side, proponents argue that stablecoins offer a new engine of global dollar demand, with their underlying reserves tied to US Treasuries. OKX Singapore CEO Gracie Lin has noted that stablecoins are providing clearer long-term price signals and could enhance the efficiency of financial markets [1]. Conversely, critics like UC Berkeley’s Barry Eichengreen caution that stablecoins could replicate the 2008 liquidity crisis. He warned that if a stablecoin’s value were to drop below its peg, it could trigger a chain reaction of redemptions and forced asset sales, potentially destabilizing the broader financial system [4].

Looking ahead, the role of stablecoins in the global financial ecosystem is likely to evolve further. Citi has forecasted that stablecoins and tokenised securities will process 10% of the global post-trade market within five years, driven by advancements in blockchain technology and increased regulatory clarity. The investment bank noted that institutions are increasingly viewing distributed ledger technology as a tool to reduce funding costs and operational overheads. Additionally, the adoption of AI in client onboarding and post-trade processes is accelerating, with 86% of surveyed firms piloting AI applications [5]. These developments indicate that stablecoins are not just a niche phenomenon but a transformative force in the global financial landscape.

Source: [1] Asia Morning Briefing: Are Stablecoins an 'Engine of Global Dollar Demand' or a 2008-Style Liquidity Crunch (https://www.coindesk.com/markets/2025/09/03/asia-morning-briefing-are-stablecoins-an-engine-of-global-dollar-demand-or-a-2008-style-liquidity-crunch) [2] What is a Stablecoin? (https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-a-stablecoin) [3] Stablecoins Set to Power a Tenth of Global Post-Trade Market Within Five Years – Citi Finds (https://cryptonews.com.au/news/stablecoins-set-to-power-a-tenth-of-global-post-trade-market-within-five-years-citi-finds-130670/) [4] Lagarde's warning: 'Stablecoins pose liquidity risks; the EU should ban them without global rules' (https://www.eunews.it/en/2025/09/03/lagardes-warning-stablecoins-pose-liquidity-risks-the-eu-should-ban-them-without-global-rules/) [5] Stablecoins Set to Power a Tenth of Global Post-Trade Market Within Five Years – Citi Finds (https://cryptonews.com.au/news/stablecoins-set-to-power-a-tenth-of-global-post-trade-market-within-five-years-citi-finds-130670/)