Stablecoins emerged as crypto plumbing, tokens pegged to fiat currency that allow traders to move in and out of volatile assets without relying on traditional banking systems.
This limited use case now has a market cap of over $303 billion, up about 75% year-over-year, with Tether holding about 56% of the market and Circle’s USDC holding about 25%.
Nearly 98% of all stablecoins are pegged to the US dollar, while the euro’s share is less than €1 billion.
For the European Central Bank (ECB), these numbers transform what was once a crypto-native curiosity into a new channel for importing US financial stress.
Stablecoins no longer live exclusively on-chain. They have woven themselves into custody agreements with banks, derivatives markets and tokenized settlement systems.
That entanglement creates avenues for contagion that did not exist five years ago, and European monetary authorities are now explicitly building crisis scenarios around it.
From niche to systemic risk
Fabio Panetta of the Bank of Italy, who sits on the ECB’s Governing Council, has directly highlighted the scale problem: stablecoins have reached a size where their collapse could have significant consequences beyond the crypto sector.
The ECB’s Jürgen Schaaf made the matter even blunter in a blog post titled “From Hype to Danger.” Schaaf argues that stablecoins have moved from their crypto niche to closer ties with banks and non-bank financial institutions.
A disorderly collapse “could reverberate across the entire financial system,” especially if sales of the safe assets backing these tokens trickle down to bond markets.
The Bank for International Settlements provides the global framework. The BIS Annual Economic Report 2025 warned that if stablecoins continue to scale, they could undermine monetary sovereignty, cause capital flight from weaker currencies and lead to safe asset sales when pegs break.
Schaaf cites forecasts that the global supply of stablecoins could rise from about $230 billion in 2025 to about $2 trillion by the end of 2028.
The mechanism runs through the composition of the reserves. The largest dollar-pegged stablecoins back their tokens primarily with US government bonds, and at $300 billion, these assets represent a significant portion of government bond demand.
At $2 trillion, they could rival some of the largest sovereign wealth funds in the world. A confidence shock that triggers massive redemptions would force issuers to quickly liquidate government bonds, adding volatility to the global benchmark for risk-free rates.
When a stablecoin run becomes an ECB problem
Olaf Sleijpen, governor of De Nederlandsche Bank and policymaker at the ECB, explained the transmission mechanism in interviews with the Financial Times.
His warning has weight because he describes something that the ECB should actually respond to.
Sleijpen’s scenario consists of two phases. First, a classic run: holders lose confidence and rush to exchange tokens for dollars. The issuer must dump government bonds to meet repayments.
Second, the spillover: forced liquidations drive up global interest rates and worsen risk sentiment. Inflation expectations and financial conditions in the eurozone are suddenly changing in ways that the ECB models had not anticipated.
That second phase forces the hand of the ECB. If government bond yields rise and global risk spreads widen, European financing costs will rise, regardless of what the ECB plans.
Sleijpen has said publicly that the ECB may need to “reconsider” its monetary policy stance, not because the eurozone has done anything wrong, but because the instability of the dollar stablecoin has changed global financial conditions.
He sees this as stealth dollarization. The heavy reliance on dollar-denominated tokens makes Europe look like an emerging market that has to live with the Federal Reserve’s choices.
An old-fashioned problem of emerging markets, imported dollar shocks, is once again entering Europe through the back door.
Europe’s scenarios
European authorities did not wait for a crisis to start modeling what a crisis would look like.
The European Systemic Risk Board, chaired by Christine Lagarde, recently highlighted multi-issuer stablecoins as a specific vulnerability.
These arrangements involve a single operator issuing tokens in multiple jurisdictions, while reserves are managed as a single global pool.
The latest crypto report from the ESRB warns that non-compliant stablecoins, such as USDT, are still heavily traded among EU investors and “may pose risks to financial stability” through liquidity mismatches and regulatory arbitrage.
In a stressed situation, holders could rush to cash preferably in the EU, where MiCA offers stronger protection, draining local reserves the fastest.
A VoxEU/CEPR piece from European central bank economists describes multi-issuer stablecoins as a macroprudential issue.
Their scenario models focus on jurisdictions with more favorable rules, which accelerate outflows and spread the pressure on banks holding reserves.
The Dutch market regulator AFM has published scenario studies that include stablecoin instability as a standard tail risk.
One “plausible future” combines loss of confidence in the dollar, cyberattacks, and stablecoin instability to show how quickly systemic stress can spread.
This is not speculative fiction, but work supervisors do so when they deem a risk plausible enough to warrant contingency plans.
The European counter-strategy
The alarmist framework has a regulatory counterbalance. The European Banking Authority recently pushed back on calls to rewrite crypto rules, arguing that MiCA already provides safeguards against stablecoin runs, including full reserve support, governance standards and limits on major tokens.
At the same time, a consortium of nine major European banks, including ING and UniCredit, announced plans to launch a euro-denominated stablecoin under EU rules.
The launch comes at a time when the ECB is skeptical about stablecoins, with Lagarde warning that privately issued tokens pose risks to monetary policy and financial stability.
Schaaf’s blog outlines the broader strategy: encouraging euro-denominated, tightly regulated stablecoins while promoting the digital euro as an alternative to central bank digital currencies.
The aim is to reduce dependence on foreign dollar-denominated tokens and maintain the ECB’s control over the monetary rails.
If Europeans use off-chain money, it should be money that the ECB can oversee, denominated in euros and backed by assets that do not require the liquidation of government bonds in a crisis.
Crisis talk versus market reality
The dramatic language of ‘global financial crisis’ and ‘shock scenarios’ contrasts with current circumstances.
Stablecoins remain small at $300 billion compared to the balance sheets of global banks. There has been no truly systemic stablecoin run, even when Tether faced skepticism or when Terra collapsed.
But the ECB is not warning for 2025. It is a warning for 2028, when projections place the market cap of stablecoins at $2 trillion and the entanglement with traditional finance is expected to be much deeper.
The real story is that European monetary authorities now view stablecoins as a live channel for importing US shocks and losing monetary policy autonomy.
That perception means more stress tests, including stablecoin run scenarios, more regulatory battles over the scope of MiCA, and faster efforts to bring European money into the chain via domestic alternatives.
The $300 billion market, which started as crypto plumbing, has become a front in the battle over who controls the future of money, and whether Europe can protect itself from dollar shocks arriving via blockchain transactions rather than bank transfers.