Krogstrup outlines stablecoin risks to monetary sovereignty and financial stability

Stablecoins are backed crypto assets designed for fixed value, typically against fiat currency, and backed by cash or short-term government securities.

Their novelty lies in distributed ledger technology (DLT), enabling them to function as transferable digital bearer instruments, akin to cash, without requiring a bank account.

While DLT offers 24/7 operation and programmability, stablecoin adoption remains limited, primarily within the crypto ecosystem for settling transactions with other crypto assets.

The global market capitalisation reached USD 300 billion in 2025, equivalent to roughly half a percent of the US equity market.

Retail use and store-of-value functions are minimal, albeit slowly increasing.

The slow adoption is debated, with some citing regulatory clarity issues, especially in the US, or suggesting DLT's advantages have been overstated, driven by regulatory arbitrage.

The heightened focus on stablecoins is driven by changing political dynamics and an evolving regulatory environment.

The US administration increasingly supports dollar-denominated stablecoins, viewing them as reinforcing the dollar's international role.

Meanwhile, the EU and other jurisdictions express strategic concerns about reliance on USD-based payment systems, linking it to strategic autonomy.

Regulatory frameworks like MiCAR in the EU and proposed acts in the US are developing, reducing uncertainty and potentially lowering barriers for institutional participation.

Despite these tailwinds, the potential for widespread adoption remains uncertain, as evidence for viable use cases like cross-border payments or wholesale settlement is still mixed.