Though stablecoins offer potential benefits, including greater increased efficiency in payments, and expanded access to digital finance through increased competition, they also pose significant risks which must be addressed through appropriate regulations and global regulatory coordination, a new report by the International Monetary Fund (IMF) says.

The report, released in December 2025, offers a comprehensive view of stablecoins, discussing market developments, use cases, potential benefits, and associated risks.

Macrofinancial stability

It notes that while stablecoins are designed to maintain a fixed value, these digital currencies can still fluctuate because their backing assets and management are exposed to market, liquidity, credit and governance problems. If reserve assets lose value, are illiquid, or are poorly managed, the stablecoin can trade below its intended peg, undermining confidence and the idea that money should have a single, stable value.

During periods of stress, limited or uncertain redemption rights can push holders to sell quickly on secondary markets, creating first-mover advantages and potential runs. Large sell-offs may force issuers to liquidate reserve assets at distressed prices, further weakening the stablecoin and amplifying volatility.

Disruption of reserve asset markets

The IMF also highlights the risk that large-scale adoption of stablecoins could disrupt key financial markets, especially those for short-term government debt like US Treasury bills.

Currently, stablecoins hold about 2% of outstanding US Treasury bills, far less than the share held by money market funds. However, if stablecoins grow to become as sizable as some private sector forecasts indicate, yields in the Treasury bill market could be compressed, potentially altering money market dynamics.

More critically, during stablecoin runs, fire sales of the underlying reserve assets could occur, impairing market functioning. Severe impairment in these markets could require intervention by the central bank, and negatively impact the ability of the government to raise funds.

Currency substitution

Widespread adoption of stablecoin could also facilitate currency substitution, undermining monetary sovereignty and hindering the ability of a government to exercise full control over its own currency and monetary policy.

In particular, if a significant share of economic activity were to shift to foreign currency-denominated stablecoins, a central bank’s control over domestic liquidity and interest rates could weaken the transmission of monetary policy.

Financial integrity

The report also highlights risks relating to financial integrity. Without proper regulation, stablecoins, like other cryptocurrencies, can be misused to commit serious crimes, such as money laundering, terrorism financing, and financing the proliferation of weapons of mass destruction, owing to their pseudonymous nature, low transaction costs, and ease of cross-border use.

Stablecoins can be transacted through unhosted wallets that fall outside any regulatory perimeter. This allows them to circumvent customer due diligence, sanctions screening, recordkeeping, and suspicious transaction reporting.

The speed and irreversibility of blockchain-based transactions further complicate efforts by law enforcement agencies to investigate, trace, or confiscate illicit transactions involving stablecoins.

Safety and cyber risks

Beyond macrofinancial concerns and financial integrity, the IMF report also highlights risks related to safety and cyber risks.

Stablecoin users face operational risks from flawed processes, system failures, human errors, governance lapses, data breaches, and other external disruptions. Smart contracts, in particular, may include coding errors and security flaws, leading to unauthorized transfers or loss of funds.

Custodial wallets may be connected to the Internet and thus face cyber risks, while noncustodial wallets require advanced operational safeguards and still expose users to the risk of losing their private keys.

Legal uncertainty

Finally, legal uncertainty represents another major risk. A key challenge is the absence of a clear legal classification of stablecoins. Under private law, stablecoins may be categorized as intangible properties or contractual claims, while under financial law, they may be categorized as deposits, e-money, securities, or commodities.

Stablecoins can also pose legal risks in the event of an issuer or custodian’s insolvency. In such cases, stablecoin holders may be treated as unsecured creditors rather than having claims over reserve assets. To reduce this risk, strong requirements are needed to ensure that reserve assets are clearly segregated from the issuer’s own funds. In addition, clear legal authority is needed for a swift and orderly insolvency regime tailored for stablecoin issuers and custodians, including mechanisms to ensure that stablecoin holders are repaid promptly.

Legal risks are further amplified with the use of new technologies and in cross-border settings. The use of distributed ledger technology (DLT) introduces new questions regarding applicable law, asset ownership, and the enforceability of rights, while smart contracts bring about uncertainty over legal attribution and validity.

Need for international collaboration

The IMF report notes that while regulatory frameworks and standards for stablecoins are emerging to tackle these risks, the global landscape remains fragmented. In particular, approaches in jurisdictions including Japan, the European Union (EU), the US, and the UK differ in several important areas, including the type of entities allowed to issue stablecoins, approaches toward foreign stablecoin issuers, as well as segregation and custody requirements. These differences create opportunities for regulatory arbitrage which can affect the overall effectiveness of these regulations.

Furthermore, the cross-border nature of stablecoins complicates oversight, underscoring the need for strong collaboration, both nationally and internationally.  As stablecoins continue integrate into the global financial system, the IMF urges policymakers, regulators, and industry stakeholders to work together to ensure that the potential benefits of stablecoins materialize while mitigating increasing risks.

Such collaboration, the report says, is critical to create a resilient and inclusive financial ecosystem that supports innovative financial solutions and economic growth.

The state of stablecoins

Stablecoins have captured widespread attention in recent months, owing to their rapid growth. The market now exceeds US$280 billion, accounting for roughly 8% of the total cryptocurrency asset market.

This market is led by Tether (USDT) and USD Coin (USDC), two US dollar-denominated stablecoins which account for US$184 billion (63%) and US$75 billion (26%) of stablecoin market capitalization, respectively.

Euro-denominated stablecoins, by contrast, remain relatively small, totaling only around EUR 395 million, according to the European Central Bank. However, recent regulatory clarity, including the full implementation of the Markets in Crypto-Assets Regulation (MiCA) in the EU at the end of 2024, has been a key driver of their emerging growth.

At present, cryptocurrency trading is the largest use case for stablecoins, allowing traders to move seamlessly between digital assets, manage risk, and lock in gains. However, new use cases are emerging, with growing adoption across cross-border payments, peer-to-peer (P2P) remittances, and business-to-business (B2B) payments.

Mesta, for example, is an American startup providing a cross-border payments platform combining traditional real-time fiat payment systems with blockchain-based stablecoin rails. Infinite is a global B2B stablecoin payments infrastructure venture enabling businesses and developers to integrate fast, low-cost cross-border money movement using stablecoins.

Featured image: Edited by Fintech News Switzerland, based on image by rawpixel.com via Freepik