Stablecoins Pose a Systemic Risk—Could They Trigger a 2008-Level Crash?

• The growth of stablecoins comes with the risk of financial ecosystem collapse.
• Alternatives to dollar-backed stablecoins are growing, with Tether and Circle’s share threatened.

The market capitalization of stablecoins has surged to over $230 billion, increasing by 90% since late 2023. Using stablecoin for international transactions has strengthened the US dollar as the dominant global currency. 

Stablecoins Face Systemic Bank Run Risks

As previously mentioned in our report, the total stablecoin supply grew by $16.97 billion since the start of 2025. These digital assets increased from around $194.2 billion to $211.2 billion in circulation, reflecting growing liquidity within the crypto sector.

Still, there are rising concerns that stablecoins trigger systemic risks similar to past financial crises. Stablecoin holders may rush to redeem their tokens for cash during market turmoil. This situation usually forces issuers to sell off their reserve assets, creating instability in the financial markets, similar to what occurred in 2008.

At the time, the Reserve Primary Fund, a major Money-Market Fund (MMF), broke its dollar peg following exposure to Lehman Brothers’ collapsed debt. That event disrupted the global financial system due to widespread panic and a broader run on MMFs.

Many market participants, including Federal Reserve Governor Lisa D. Cook, think the same risks apply to stablecoins. 

While speaking at a recent financial conference, Cook commented, “If a run on a large stablecoin were to occur, liquidation of the assets backing the stablecoin could be disruptive, especially if those assets were linked to other funding markets.”

Lawmakers are pushing to regulate stablecoins through legislative efforts like the STABLE Act and GENIUS Act. These bills seek to regulate issuers who wish to license and back their tokens with approved assets like cash and US Treasury bills.

However, critics argue that the GENIUS Act lacks key safeguards to prevent financial instability. Senator Elizabeth Warren warned that the bill would allow stablecoin issuers to invest in risky assets. 

Why Stablecoins Remain Relevant and Disruptions

Despite the increasing concerns, stablecoins have remained instrumental in reinforcing the US dollar’s dominance. As the dollar continues to expand, its impact on the financial system grows more important. Stablecoins offer benefits such as increased payment efficiency and cross-border transactions. 

The Tether (USDT) and USD Coin (USDC) stablecoins serve as dollar-backed tokens. This widespread adoption enhances the dollar’s role in international trade, increasing demand for US assets. 

However, China has raised concerns that the US’s growing influence in cryptocurrencies could undermine its financial sovereignty. Against this backdrop, Beijing has accelerated its development of the digital yuan. China intends to reduce dependence on dollar-based stablecoins in cross-border transactions. 

Disruptions from traditional financial institutions also plague the stablecoin industry. Major US banks, including Bank of America, are reportedly exploring their stablecoin offerings. This comes after recent changes to regulations that permit US banks to offer stablecoin and crypto services.

As featured in our recent coverage, Gold-backed stablecoins are also gaining traction. Bitcoin advocate Max Keiser believes gold-backed stablecoins would be more reliable and eventually outperform the dollar in international trade.

This new competition could cause private issuers like Tether and Circle to lose market dominance. However, it could also integrate stablecoins more deeply into the mainstream financial system.