The Financial Stability Board (FSB) has warned that the $300 billion stablecoin market faces significant redemption risks, particularly when issuers operate through affiliated entities in different countries and hold reserve assets in separate jurisdictions.
In an October 12 report ahead of G20 finance minister discussions, the global watchdog identified vulnerabilities in multi-issuer stablecoin arrangements where redemption demand could concentrate in one location while collateral remains elsewhere. During market stress, banking restrictions, settlement delays, and regulatory differences could prevent timely reserve transfers between entities.
Cross-Border Liquidity Challenges
The FSB highlighted how stablecoins' around-the-clock trading speed contrasts sharply with traditional asset settlement hours and procedures. If issuers cannot meet redemptions quickly, holders may sell stablecoins at discounts on secondary markets, potentially breaking their dollar pegs. Large-scale runs could also destabilize traditional finance if issuers rapidly liquidate reserve assets or withdraw substantial bank deposits.
Circle's European stablecoin arrangement serves as a practical example. The company co-issues USDC through separate French and U.S. entities, with its redemption policy allowing temporary limits during stress events when reserve rebalancing cannot occur between the two entities.
Regulatory Gaps and Information Barriers
The FSB identified additional complications for managing stablecoin distress across borders. Pseudonymous blockchain transactions make it difficult to determine which entities hold specific tokens and bear redemption obligations. Differences in national insolvency laws create uncertainty over regulatory authority and reserve distribution if a stablecoin issuer faces failure.
The watchdog also noted substantial implementation gaps in countries' adherence to its global stablecoin recommendations, creating opportunities for issuers to structure operations across jurisdictions with varying supervisory requirements.
FSB Recommendations
The FSB is seeking stronger international information-sharing arrangements, closer monitoring of stablecoin circulation and redemption patterns, and more coordinated regulatory approaches to managing distress or insolvency. The watchdog noted that blockchain analytics providers use inconsistent methods to track stablecoin activity, complicating reliable geographic identification of holders.
These recommendations build on the FSB's 2023 guidance but remain non-binding, leaving implementation to individual national authorities. The board has not established a timetable for developing common procedures governing stablecoin issuer failures across multiple jurisdictions.
