Probability & Partners: How stable are stablecoins?

February 10, 2026

By Yusi Wang, Senior Risk Consultant, and Gerd-Jan Wiggen, Partner, both at Probability & Partners

The development of tokenized assets in the EU market has grown rapidly in recent years and is expected to continue expanding, particularly with the rise of stablecoins.

A stablecoin is a type of cryptocurrency, but unlike other crypto assets, it is designed to maintain a stable value by being pegged 1:1 to another asset, most commonly the US dollar or the euro, whereas other cryptocurrencies are not backed by or linked to any underlying (real) assets. In addition to price stability, stablecoins provide several advantages, including faster payments and lower transaction costs, compared with traditional financial systems that rely on intermediaries for payment transfers.

Does this mean there is no concern about the boom in stablecoins? The increasing interaction between traditional banks and stablecoin issuers has created a more dynamic and a volatile financial environment. Tether, one of the largest stablecoin issuers, held total assets of $ 192 billion across various asset classes, including $ 122 billion in short-term U.S. Treasury bills, as well as holdings in gold ($ 17 billion) and Bitcoin ($ 8 billion), according to its audit report as of the end of 2025[1]. These large stablecoin issuers are expanding their balance sheets and becoming more systemically important, which could pose potential threats to financial stability without regulatory scrutiny being as strict as that applied to the traditional financial sectors such as banks and investment firms. Growing competition between stablecoin issuers and banks is challenging banks’ business models, particularly in terms of client retention and balance-sheet management.

Financial stability

While stablecoin is designed to maintain stable value by being pegged 1:1 to other assets, the concern is how stable can it keep its stable value and what will happen to the financial markets if it loses its peg.

A real-world example of this occurred in May 2022, when the stablecoin issuer Terra (UST) lost its peg to the US dollar and ultimately collapsed to zero. Rising investor fears triggered a large wave of stablecoin redemptions. Tether, one of the largest US dollar–backed stablecoin issuers, had to process approximately $ 7 billion in redemptions within just 48 hours following the Terra (UST) collapse.

A loss of confidence could trigger a run on a stablecoin and affect other segments of the financial system due to the increasing interlinkages with traditional financial market players. As stablecoins are primarily backed by high-quality assets denominated in US dollars or euros, such as short-term US Treasury bills, cash held at credit institutions, or other cash equivalents, the volume of such assets held by the largest stablecoins is so large that, in the event of a severe run, this could trigger a fire sale of those assets. An ECB analysis[2] shows that the two largest stablecoins now rank among the largest holders of US Treasury bills and have asset reserves that are comparable to the top 20 largest money market funds.

Because the stablecoin market is both large and rapidly growing, particularly in the US, systemic risks can arise from these digital assets. In response, the EU has introduced the MiCA regulation, which imposes strict rules across multiple areas to mitigate spillover risks between jurisdictions. As a result, several major stablecoin issuers do not fully comply with MiCA requirements. For example, Tether has argued that the EU rules are overly stringent, citing provisions such as the requirement to maintain at least 60% of its reserves in EU bank deposits as undesirable, among other requirements.

Funding and liquidity  

Deposit funding, whether retail or wholesale, is a traditional and critical funding source for banks. One concern is that banks fear they may lose customers to the stablecoin issuers and a main funding source could diminish. In the U.S., one of the biggest regulatory debates going on is whether to allow stablecoin issuers to pay interest or yield to their customers. Unsurprisingly the banking sector does not welcome this idea, fearing that stablecoin issuers are becoming ‘bank-like’ and creating more competition. In the EU, the Markets in Crypto-Assets Regulation (MiCA) Regulation is more strict, stablecoin issuers such as electronic money tokens (EMTs[3]) and asset-referenced tokens (ARTs[4]), are prohibited from paying interest or yield to their customers.

Another concern is more volatile funding due to changes in behavior among stablecoin-linked retail depositors and wholesale depositors, such as stablecoin issuers:

• Unlike traditional retail deposits, which are typically considered ‘sticky’ because they are used for savings or routine bill payments, stablecoin-related deposits, whether they are retail or wholesale, tend to move more rapidly. Traditional banking behaviors are shifting as depositors increasingly transfer funds between fiat bank accounts and stablecoin platforms for payments and trading purposes. As a result, deposits that were historically viewed as stable and predictable are becoming more transactional in nature. This could lead to more frequent and high-volume outflows, requiring banks to hold larger liquidity buffers to manage increasingly unpredictable withdrawal patterns.
• Conversely, during times of market panic or financial stress, a ‘flight to safety’ effect may occur, potentially leading to increased inflows into the banking system. When investors rush out of the crypto market by redeeming stablecoins for fiat money or marketable instruments, banks can suddenly receive a large inflow of cash. While this increases bank deposits, the speed and size of these inflows can create operational challenges for banks.
• Stablecoin issuers themselves will become a new type of depositor, because they must hold a significant portion of their reserves as cash at credit institutions, as explicitly required under the MiCA Regulation. Non-significant issuers must maintain a minimum of 30% of their reserves in cash deposits at credit institutions, while significant issuers must maintain at least 60% in cash deposits. It appears that some of the cash flowing out of the banking system returns, but through stablecoin issuers rather than traditional retail or wholesale depositors. When a stablecoin issuer places cash with a bank, it will be classified as a wholesale deposit, which typically results in a larger outflow compared to a retail deposit. Regulatory liquidity metrics such as LCR weakens and banks must therefore hold more High Quality Liquid Assets (HQLAs), which could impact the banks’ return or assets (RoA) or return on investment investments (RoI).

Capital requirements for institutions’ exposures to crypto assets

In light of the rapid development of crypto asset market, the EU prudential framework has been enhanced to ensure that credit institutions’ exposures to crypto assets are sufficiently capitalized. On August 5^th, the European Banking Authority (EBA) published its final report on draft Regulatory Technical Standards (RTS) for the prudential treatments of crypto asset, defining several technical elements, including the use of netting, aggregating of long and short positions, capital treatments for credit risk, counterparty credit risk, market risk and credit valuation adjustment risk. For example, from the credit risk perspective, different risk weights will apply depending on the category of crypto assets held by the institution:

• Tokenized traditional assets: if a bank holds tokenized financial instruments (such as tokenized bonds or money market funds) or EMTs (such as USD or EUR stablecoins), the credit risk of these exposures is treated as equivalent to that of the underlying assets they represent.
• ARTs: exposures to ARTs whose issuers are MiCA compliant will apply a risk weight of 250%
• Other crypto assets: these include exposures to high-risk crypto assets such as Bitcoin and Non-Fungible Tokens (NFTs). A risk weight of 1250% applies, and such exposures are subject to a limit of 1% of the institution’s Tier 1 capital.