Stablecoin Side Effects: How Accurate Are the Crisis Theories? (2026)

While watching a video about how the growth of stablecoins could actually pose a risk to the U.S., I paused at a specific number.

Stablecoin crisis theories are generally correct in direction, but there is a discrepancy in scale. The video claimed global physical dollars amount to approximately $100 trillion, but Federal Reserve statistics place this figure at around $2.4 trillion.

This article is a record comparing the four risks highlighted in the video against data from the BIS, ECB, and the Fed, while pairing them with their corresponding benefits.

How Much Has the Stablecoin Market Grown, and Why Is the Debate So Heated Now?

The stablecoin debate is currently intense because the market has grown large enough to impact Treasury bonds and bank deposits.

The market capitalization of dollar-pegged stablecoins was about $4.9 billion at the end of 2019 and reached approximately $266 billion by the end of August 2025. (Data from the Korea Institute for International Economic Policy regarding USD stablecoin market trends confirms this figure.)

The figures vary depending on the aggregation scope. Coinpaprika reports stated that as of October 2, 2026, Tether (USDT) and USDC combined reached about $258 billion**, while *Hwawoo's *[*column on U.S. stablecoin regulatory trends*](https://www.lawtimes.co.kr/news/articleView.html?idxno=220707) estimated the total dollar-pegged stablecoin market in April 2026 at about **$317 billion. Regardless of the source, they are all in the hundreds of billions of dollars.

Legislation has also been enacted. On July 18, 2025, the U.S. signed the GENIUS Act.

Payment stablecoin issuers are now required to maintain 1-to-1 reserves in cash, short-term Treasuries, or insured deposits, and issuers are prohibited from paying interest directly. The Federal Reserve proposed rules to implement this act on September 29, 2026.

Optimistic voices are also specific.

Treasury Secretary Scott Bessent stated that increased demand for stablecoins could expand the capacity for short-term Treasury issuance, thereby reducing reliance on long-term bonds, and JPMorgan predicted the market could grow to as much as $700 billion within a few years. (Both statements appear in Block Media’s GENIUS Act report.)

From this perspective, the video identified four risks:

As cash shifts to stablecoins, the U.S. loses non-interest-bearing funding,

Treasury issuance becomes skewed toward short-term bills, increasing rollover risk,

Bank deposits decline, reducing credit creation,

And fire sales occur when issuers dump Treasuries during a crisis.

Before examining them one by one, here is a summary table of the assessment.

Summary Table of the Four Stablecoin Crisis Theories (As of October 2026)

Stablecoin Side Effect ①:

Seigniorage Disappears, and Where Did the $100 Trillion Come From?

The argument that the U.S. loses seigniorage (profit from currency issuance) due to stablecoins is directionally correct. However, the base amount of cash should be around $2.4 trillion according to the Fed, not $100 trillion.

Let’s look at the structure. Paper currency is non-interest-bearing debt issued by the Fed. The Fed uses that money to buy Treasuries to earn interest, and after expenses, transfers most of the profit to the Treasury. People holding cash forgo interest, allowing the government to borrow money cheaply.

The numbers are confirmed by Fed statistics.

In February 2026, currency in circulation was $2.4314 trillion according to [FRED Fed statistics](https://fred.stlouisfed.org/graph?g=6tSW). The Fed estimates that up to half of this circulates overseas. As of the end of 2024, the [U.S. Currency Statistics page](https://www.uscurrency.gov/ar/node/89) shows that $100 bills alone accounted for $1.9155 trillion.

The video’s scenario suggests that if 30% of physical dollars move to stablecoins, an annual interest burden of tens of billions of dollars will arise. 30% of $2.4 trillion is about $730 billion, and multiplying this by a 3-4% interest rate results in about $22-29 billion per year. The resulting "tens of billions of dollars" is accurate based on the $2.4 trillion figure. Calculating with $100 trillion would result in $0.9-1.2 trillion annually, a 40-fold difference. While the base number in the explanation was incorrect, the scale of the conclusion remains relevant.

There is also a logic for the benefits.

Stablecoins don’t just replace cash; they create new demand for dollars in places where cash was previously hard to obtain. The fact that half of all cash is overseas means dollar demand already exists outside borders, and the digital dollar used via smartphone expands that demand further.

The destination of interest also changes.

The Fed issues currency and buys Treasuries issued by the Treasury on the open market. The Fed collects that interest and, after expenses, dividends, and reserves, transfers the majority of profits to the Treasury according to the Federal Reserve Act and Board policy.

If money moves to stablecoins, the issuer gives out coins, receives dollars from the market, and must keep that money in short-term Treasuries or insured bank deposits to maintain the total amount. The biggest difference in this structure is that the issuer keeps the interest on the portion held in Treasuries. Unlike the Fed in the cash era, there is no regulation requiring that interest to be returned to the Treasury.

However, reserves are mixed with bank deposits, so not all cash moved becomes Treasuries. For the portion moved into Treasuries, the Treasury pays the same interest, but the portion it used to receive back disappears. Other channels, such as taxes paid by issuers, are a separate issue.

In the cash era, cash holders didn’t receive interest, and stablecoin holders don’t receive interest from issuers either, as the GENIUS Act prohibits direct interest payments (rewards through exchanges are a separate issue).

Stablecoin Benefits and Side Effects ②: Treasury Yields Decline and Maturities Skew

BIS research shows that stablecoin inflows lowered 3-month Treasury yields by a few basis points, with almost no spillover into longer maturities. (A “bp” (basis point) is 0.01 percentage points.)

The basis is BIS Working Paper 1270, “Stablecoins and safe asset prices”, analyzed by Rashad Ahmed and Iñaki Aldasoro using daily data from 2021-2025.

An inflow of about $3.5 billion, corresponding to one standard deviation, lowered 3-month yields by 2-2.5bp within 10 days.

The February 2026 revised edition presents this range as 2.5-3.5bp. During periods of Treasury shortages, the same inflow had an effect of 5-8bp, and stablecoin issuers bought about $35 billion in short-term Treasuries in 2024 alone.

The video claimed that the government and academia estimate stablecoins lower Treasury yields by 20-40bp. I could not find a basis for this magnitude in BIS research. One commentary article reported that if the BIS authors extrapolate to a $2 trillion scenario by 2028, the short-term yield decline would be around 8bp. Note that this is an extrapolation limited to 3-month paper based on a pre-revision version.

In terms of benefits, the most specific is Secretary Bessent’s expectation.

The logic is that if demand for short-term Treasuries increases, reliance on long-term bonds decreases, easing pressure on long-term rates like mortgage rates. However, according to the BIS results, there is almost no spillover to long-term paper, so the expectation regarding long-term rates has weak foundations. The confirmed effect is simply that short-term funding costs become slightly cheaper.

The second risk presented in the video is maturity skew. If issuers only buy short-term Treasuries, the government increases short-term issuance, and rollover frequency increases. The logic holds. However, in the scope of my research, there was no data showing the magnitude of this skew. Instead, BIS research provides evidence from another angle.

In the same study, the extent to which outflows raise yields is 2-3 times the extent to which inflows lower them. Some commentaries suggest that when $3.5 billion flows out, 3-month yields rise by 6-8bp. Since the inflow effect nearly doubles when Treasuries are scarce, volatility increases in both directions. The paper views stablecoins as a structure where redemption demands can cluster, pointing to liquidity, interest rate, and credit risks on the balance sheet.

Stablecoin Side Effect ③: If Bank Deposits Decline, How Much Does Lending Capacity Decrease?

Bank deposit flight is the item warned about by the most institutions, but the extent to which lending decreases depends on the scale of the outflow and the bank’s response.

The warning figures are large.

According to a Eugene Investment & Securities report cited by Asia Economy, the U.S. Treasury Borrowing Advisory Committee (TBAC) diagnosed that about $6.6 trillion in transactional deposits in the banking sector is exposed to potential outflow risk. The CEO of Bank of America warned that up to $6 trillion in large bank deposits could move to stablecoins, with the core argument being that stablecoin reserves go into Treasuries like MMFs rather than returning as bank loans. This is reported in Block Media.

European assessments follow the same direction.

The ECB stated in a report that if stablecoins grow significantly, retail deposits could drain, reducing banks’ core funding sources and making funding structures more volatile. BIS General Manager Pablo Hernández de Cos also pointed out that while stablecoins might lower U.S. Treasury funding costs, they could increase banks’ funding costs, suggesting tokenized deposits as an alternative for daily payments. This statement is summarized in Block Media’s report on the BIS GM.

These numbers all come with caveats. The $6 trillion and $6.6 trillion are not actual outflows but potential or maximum figures. There are also buffering factors. Large banks are responding by launching their own stablecoins, and Eugene Investment & Securities analyzed that it would not lead to a decrease in demand deposits in Korea. Interest is also a variable. The moment interest is added, it directly competes with deposits, but the GENIUS Act blocked direct interest payments by issuers, and discussions continue in the U.S. Congress regarding whether to allow interest-bearing versions.

One explanation in the video needs correction. The textbook explanation that deposit 1 expands to loan 9 because banks keep only a fraction of deposits and lend the rest. However, the Fed lowered the reserve requirement to 0% in March 2020. The reserve requirement is the ratio banks must hold from deposits. Since that ratio is gone, this rule cannot be the limit on lending today.

What actually dictates bank lending now seems to be two things: how much it costs to obtain funds to lend (funding costs) and how much banks can survive with their own capital when increasing lending (capital adequacy). If deposits leave, banks must obtain funds from more expensive sources, and that burden can be passed on to loan rates. This aligns with the BIS GM’s warning (rising bank funding costs). This connection is my interpretation. Therefore, the actual impact of deposit flight looks closer to rising loan rates and slightly less lending, rather than lending being cut drastically.

NH Investment & Securities analyzed that if stablecoins replace deposits, the money multiplier could shrink, potentially reducing the money supply. The same report also analyzed that it could partially contribute to Treasury demand and inflation stability. It is an analysis that touches on both side effects and benefits.

Stablecoin Side Effect ④: Even with 100% Reserves, Are Runs and Depegs Possible?

Even with a 100% reserve mandate, stablecoins are not completely free from runs (mass redemptions) and depegs (value detachment). USDC showed this in March 2023.

On the night of March 10, Circle announced that it could not retrieve $3.3 billion (about 8%) of its $40 billion in reserves from the failed Silicon Valley Bank (SVB). It was the weekend, the bank was closed, and Coinbase stopped the service that converts USDC to dollars until Monday. Circle also announced that redemption would return to normal only on Monday when banks opened. While the window to convert to dollars was closed, the exchange market price of USDC briefly fell below $1. CNBC reported this, [citing CoinDesk data](https://www.cnbc.com/amp/2023/03/11/stablecoin-usdc-breaks-dollar-peg-after-firm-reveals-it-has-3point3-billion-in-svb-exposure.html). A Fed report recorded the low at $0.86.

Two points are easy to confuse. One is that this price is not the redemption price Circle provides, but the market price set on exchanges. The other is that the price drop (about 13-14%) was greater than the share of frozen reserves (about 8%). Fear was reflected in the price more significantly than the actual amount locked up.

Recovery came after authorities moved. On Sunday, March 12, the U.S. Treasury, Fed, and FDIC announced they would fully protect SVB depositors; the market price rebounded significantly, and it fully recovered as Circle resumed processing redemptions on Monday, the 13th. This process is summarized in the Fed’s analysis report on the SVB crisis and stablecoins. Blockchain analyst Nansen calculated net redemptions between March 10-15 were about $4.46 billion. This level of shock occurred just from the news that about 8% of reserves were temporarily tied up, and recovery was achieved only after the SVB deposit protection announcement, not by the issuer alone.

Terra (UST) also caused a major shock. Terra was a coin that tried to maintain value through algorithms instead of reserves, and about $60 billion evaporated. It is difficult to compare directly with the USDC case because the structure is different from the reserve-backed stablecoins covered by the GENIUS Act.

The GENIUS Act limits assets that can be held as reserves to short-term Treasuries, insured bank deposits, repurchase agreements (repo), and government MMFs. This can prevent putting money into dangerous assets. However, it is unclear how much it reduces accidents like the one in 2023 where money was stuck in a single bank. It is also not a mechanism to prevent the run itself, where users demand money back all at once.

BIS views this problem not as a matter of a few accidents, but as a structural limitation. The 2025 Annual Report evaluated that stablecoins do not pass the three tests that money must meet: singularity (the property that $1 is always $1 everywhere), elasticity (the ability to increase liquidity when needed), and integrity (the ability to prevent illegal fund flows).

In a report released on June 28, 2026, they added interoperability to the test items and maintained the same conclusion. Alternatives proposed included making rules internationally consistent and tokenization within the existing two-tier structure of central banks and commercial banks. The gist is in The Block’s report on the BIS 2026 report. GM de Cos also said in April that stablecoins function closer to ETFs than money, meaning they are closer to products whose value is determined in the market rather than money that is always used at the same value.

The corresponding benefit is in payments. Stablecoins allow 24/7 instant settlement without intermediary banks, so money can be moved even on weekends when banks are closed. However, the same characteristic becomes a risk on the other side. As seen in the USDC case, prices on exchanges kept moving even on the weekend when banks were closed, and demands for money back clustered all at once. Fear spreads as fast as settlement is quick.

Stablecoin Benefits Are Sharpest in Emerging Market Remittances and Payments

The area where stablecoin benefits are most clearly visible in data is remittances and payments in emerging countries with difficult access to dollars.

According to a TokenPost remittance report citing Artemis data, about 10% of overseas remittances in emerging countries are made via stablecoins. India is the highest at 9.8%, followed by Nigeria at 9.7%, Mexico at 9.0%, Vietnam at 7.8%, Pakistan at 3.7%, the Philippines at 2.3%, and Egypt at 0.7%. There are reports that there was about $22 billion in stablecoin transactions in Nigeria over the past year.

Fee gaps drive usage. According to a Block Media report on stablecoin parallel currencies, stablecoin transactions under $10,000 increased nearly 10-fold from about 316 million to about 3.2 billion in 2025. 82% of BNB chain transactions are under $1,000, and the average fee is about $0.05. Compared to the case where a fintech service fee is about $8 when sending $40 to Costa Rica, the difference is significant.

Other numbers in the same report are signs of side effects. In countries where the local currency is unstable and there is capital control, people had to buy stablecoins at prices higher than the official exchange rate. The premiums were 97.4% in Algeria, 70.5% in Bolivia, and 40.6% in Venezuela, and 99.9% of stablecoin transactions are dollar-based. This premium means the demand for dollar coins is that desperate, and at the same time, it means people are fleeing their local currency. This is why GM de Cos warned that the spread of dollar-pegged coins could weaken the monetary sovereignty of each country.

From the U.S. perspective, the two stories are connected. The reserves for the digital dollars held by emerging market citizens on their smartphones are U.S. Treasuries. As that demand increases, the Treasury demand effect we saw earlier grows. In this item, the benefit gained by the U.S. and the price paid for monetary sovereignty by emerging countries are two sides of the same coin.

The Won Stablecoin Debate Shows How Far the Side Effect Discussion Has Come

In Korea, the discussion on stablecoin side effects has appeared as a governance fight over who will issue the won stablecoin. As Insight Korea noted in the first half of 2026, the won stablecoin market does not yet exist. According to the won stablecoin issue article, the plan pushed by the Bank of Korea is the so-called 51% rule, which allows only consortiums where banks hold 51% or more of the equity to issue them.

The logic on the other side is clear. Fintech and virtual asset industries believe this rule blocks private entry. Since the current Banking Act does not allow banks to hold 15% or more of non-financial company shares, it was pointed out that if the issuer is a non-financial company, 4 or more banks must divide the shares to comply with the principle. At the time, Bank of Korea Governor Rhee Chang-yong emphasized a bank-centered issuance structure in January 2026, stating that if combined with dollar stablecoins, capital flight and exchange rate volatility could increase. Whether to allow interest was also an issue. Concerns that if interest is attached, it becomes a quasi-financial product replacing deposits or MMFs, and counterarguments that if holding incentives are blocked, competitiveness as a payment instrument falls, collided.

In the August 2026 Korea Financial News K-stablecoin preemption competition article, academic criticism was also included. Professor Kang Hyung-goo of Hanyang University pointed out that uniform equity restrictions like 50%+1 share cannot directly control reserve asset management or mass redemptions themselves, suggesting that direct control mechanisms for reserve assets, redemption, anti-money laundering, and real-time reporting should be attached. This is an argument that the run and depeg problems seen earlier should be solved with mechanisms, not equity ratios. In the same article, KB, Hana, and Suhyup are securing infrastructure like custody, reserve asset management, and payment networks first, regardless of issuance rights. The Financial Services Commission announced its goal to complete legislation within the year and was pushing to prepare a government-party integrated plan in September. I have not been able to confirm subsequent progress.

Collecting 5 Stablecoin Benefits and 5 Side Effects in One Table

When collecting the previous contents by item, it is revealed that the solidity of the evidence differs for each item. I placed benefits and side effects on the same line and wrote whether the evidence is empirical or a scenario in the last column.

Comparison Table of Stablecoin Benefits and Side Effects by Item (As of October 2026)

Item	Benefit	Side Effect	Solidity of Evidence
Dollar demand/ Seigniorage	Digital dollar demand is created where cash couldn’t reach	If cash is replaced, interest goes to the issuer. About $22-29 billion/year assuming 30% conversion	Calculation is arithmetic, conversion ratio is an assumption
Treasuries/ Yields	3-month yield decline of 2-2.5bp, expansion of short-term Treasury demand	Outflow shock is 2-3 times the inflow, skew toward short-term paper	Inflow/outflow is BIS empirical, skew is logic
Banks/ Lending	Banks can also respond with tokenized deposits and their own coins	Funding costs and loan rates rise when deposits leave	Mostly a scenario of up to $6-6.6 trillion
Stability	1-to-1 reserve mandate, 24/7 instant settlement	Runs and depegs (USDC below $0.87), no central bank safety net	2023 case is real, no large-scale case yet
Remittance/ Monetary sovereignty	Fee and speed improvements, about 10% of emerging market remittances	Weakening of monetary sovereignty, vulnerability to illegal finance	Usage statistics are aggregated, sovereignty effect is BIS warning

In the table above, only two things are confirmed by actual data: the Treasury yield reaction measured by the BIS and the 2023 USDC case. Bank deposit flight and loss of seigniorage are pointed in the same direction by many institutions, but how large they are still relies on assumptions.

Three indicators will determine that scale. First, what percentage of total short-term Treasuries do stablecoins hold? As this ratio increases, both the yield effect measured by the BIS and the fire-sale risk appear to grow (my interpretation). Second, how much retail deposits actually leave banks? The figure of around $6 trillion seen earlier is just a scenario assuming a maximum. Third, how the second stage of Korea’s Digital Asset Basic Act is handled.

In Korea, the Financial Services Commission is aiming for legislation within the year, and the debate continues over whether to include the ‘bank 51% equity’ condition requested by the Bank of Korea in the law. The last report I checked was the end of August 2026, and I have not been able to confirm progress since then.