Are Stablecoins Truly Stable?
Three core principles underpin a functioning monetary system; Stablecoins fail all three.
What is a stablecoin and how does it work?
‘Stablecoins’ are digital dollars that live on the internet. They try to always be worth the same as one real US dollar (or another currency). So unlike Bitcoin, which goes up and down in value, a stablecoin is intended to remain stable, hence the name.
Why?
If a stablecoin is worth the same as a dollar, why not just use a dollar?
The advantage isn’t the value, it’s the technology the value lives on.
In theory, stablecoins are dollars that can move at internet speed, on internet rails, without a bank in the middle.
With cash, international wires can take 3–5 days. Stablecoins can be sent to anyone, anywhere in the world, and it arrives in seconds. Even at 3 AM on Christmas morning.
Cash transfers are expensive. The money passes through multiple banks, each taking a cut. When using stablecoins the fee is often a fraction of a penny. You pay the network, not a dozen middlemen.
A physical dollar bill or a bank balance can't do anything except sit there or be sent. Stablecoins are programmable, such as a payment that only unlocks on the happening of a specified pre-condition. This may be helpful in agentic commerce.
The BIS Position on Stablecoins
The Bank for International Settlements (BIS) has drawn a clear line in the sand on stablecoins.
In Chapter III of its Annual Economic Report (June 2025), titled “The next-generation monetary and financial system,” the BIS makes an important distinction. It is broadly supportive of tokenization itself, meaning the technology of recording assets on programmable digital ledgers. But it argues that ‘stablecoins are not the future of money’. In its view, they are structurally incapable of performing the role their advocates envision.
The BIS tests stablecoins against three core principles that underpin a functioning monetary system: singleness, elasticity, and integrity.
Its conclusion is blunt. Stablecoins fail all three.
The first failure is what the BIS calls “singleness.” In a functioning monetary system, money must be interchangeable at par. A £10 note, a £10 bank deposit, and a £10 digital balance must all be treated as identical. No questions asked.
Stablecoins break that principle.
Different stablecoins operate inside fragmented blockchain ecosystems that do not naturally interoperate. Money becomes trapped inside competing digital “walled gardens” rather than existing as part of a unified monetary system.
More importantly, stablecoins regularly drift away from their promised peg. Even during relatively calm periods, many trade slightly above or below $1 on secondary markets. During periods of stress, some break far more dramatically. The BIS argues that real money should not require users to constantly monitor whether their dollar is actually worth a dollar.
The second failure is elasticity.
Modern economies require a money supply that can expand and contract with economic activity. Commercial banks create credit when businesses invest, households borrow, or commerce accelerates. Central banks then stabilize the system by acting as liquidity backstops during periods of stress.
Stablecoins cannot do this.
Most are backed one-for-one by static reserve assets such as Treasury bills or cash equivalents. That structure may sound conservative, but it creates rigidity. Stablecoins do not dynamically create credit to support productive economic activity. They simply warehouse collateral.
The BIS argues this becomes especially problematic in complex payment networks. Modern financial systems rely heavily on intra-day liquidity and credit flows to prevent payment bottlenecks. If every participant must wait for incoming funds before making outgoing payments, the system slows down and economic activity stalls. Stablecoins lack the institutional plumbing that allows modern banking systems to “breathe.”
The third failure is integrity.
Money only works when society trusts the legal and institutional framework behind it. That means consumer protections, anti-money laundering enforcement, legal finality of settlement, and credible public backstops.
According to the BIS, stablecoins fall short here as well.
Because many operate on borderless, permissionless blockchain networks, they create structural vulnerabilities around illicit finance and regulatory evasion. At the same time, they lack the public safety architecture supporting traditional banking systems.
Bank deposits are protected by deposit insurance and supported by central banks acting as lenders of last resort. Stablecoins have no equivalent protection. If confidence evaporates and redemptions surge, issuers may be forced into disorderly liquidations of reserve assets. In that scenario, holders are exposed directly to run risk.
If a stablecoin is fully backed by short-term Treasury bills held at a regulated custodian, it is more transparent than many bank balance sheets. Yet the BIS critique assumes the worst case because not all stablecoins are equal.
USDC (Circle) is audited and regulated; USDT (Tether) has a murkier history. The BIS critique applies more forcefully to the latter. But even the best-regulated stablecoin cannot solve the singleness or elasticity problems, which are structural, not operational.
The broader message from the BIS is important.
This is not a rejection of digital finance or tokenization. In fact, the BIS appears increasingly convinced that programmable ledgers and tokenized assets will become central to the future financial system.
But it believes the future will not be built around privately issued stablecoins operating outside the traditional monetary architecture.
“The BIS is not trying to stop the digitization of money; It is trying to ensure that the institutions controlling the monetary system of the future remain the same ones that control it today.”
Instead, the BIS envisions CBDC (Central Bank Digital Currency) — that means digital US Dollars under the purview of the Fed, digital Euro under the control of the European Central Bank (ECB) and digital Pounds operated by the Bank of England — and what it calls a “tokenized unified ledger.” In this model, fiat money, commercial bank deposits, and tokenized financial assets would all operate together on regulated programmable networks.
The goal is to capture the efficiency and automation benefits of blockchain-style systems without sacrificing monetary stability, liquidity support, or regulatory oversight.
In relation to the BIS assessment, is it correct?
Has it applied the right tests?
To answer this question, it becomes important to distinguish between domestic money supply and global settlement assets.
The BIS is concerned with the former; upholding the integrity of global financial systems. In this respect, the tests it has applied appear valid.
The BIS is not claiming that no money can exist without elasticity. Gold worked as a settlement asset. But gold has never operated as the primary medium of exchange for a modern industrial economy. It cannot perform that role because it creates no credit to drive growth and generates no income. Economic growth in the gold-standard era was slower and more volatile than in the modern credit-driven system.
Yet Stablecoins today aspire to be exactly that, a daily payments infrastructure, not just a reserve asset. For that role, elasticity is essential.
We certainly do not want to return to a ‘slow growth/no growth’ era of digital gold.
The Response From Industry
Major stablecoin issuers (like Tether and Circle), venture capital firms backing the technology, and digital asset lobbying groups have all objected to the BIS view, creating a clear battleground over the future of digital money.
On “Singleness” they point out that international wire transfers between different banks are slow, expensive, and opaque so one dollar sent is rarely one dollar received. They say that stablecoins provide an immediate, 24/7 cross-border alternative that operates seamlessly across global borders.
On “Elasticity” they argue that the BIS’s critique of 1:1 backing (the “collateral trap”) is actually a feature, not a bug. They claim that full backing prevents the fractionally reserved lending loops that historically cause traditional bank runs.
On “Integrity” the industry highlights that in economies experiencing high inflation or political instability (such as Argentina, Turkey, or parts of Sub-Saharan Africa), local citizens use US dollar stablecoins like USDT as a survival tool to preserve wealth. To them, a private digital dollar is vastly superior to their local sovereign currency, so it has real world utility.
Are these objections valid?
In relation to the singleness counter-argument, the BIS is arguing that not only do local currencies not convert to stablecoins at the same rate as a bank dollar, but USDT on Ethereum, USDC on Solana, and DAI on Arbitrum do not trade 1:1 with each other. The industry argues that stablecoins solve cross-border friction, but that is a different problem. Singleness is about domestic interchangeability between different forms of money. Stablecoins fail that test regardless of how fast they move.
With respect to the elasticity counter-argument, the BIS objection is not about runs, it’s about credit creation. Economies need credit to grow. Stablecoins do not create credit. A system that cannot create credit cannot support a growing economy, regardless of how safe it is from runs.
Finally, the integrity counter-argument fails because stablecoin is hugely problematical for non-G7 countries with fragile economies. On this last point, lets dig deeper.
Why are stablecoins popular in emerging markets?
Consider this. Converting Argentinian Peso into stablecoin does not remove the Peso from the system. For every seller of a Peso, there must be a buyer. The conversion simply hands the hot potato to someone else. The devaluation risk is transferred from one party to another. Accepting that risk will always come at a price; no right minded person would swap a superior asset (stablecoin) for an inferior asset (Peso) at par.
For the individual citizen, the choice is brutal: “Do I go bankrupt with my nation, or do I save my family’s wealth and let the stranger next door hold the depreciating Peso?” In a survival economy, they choose the stablecoin.
Argentina leads the Western Hemisphere in cryptocurrency adoption and is a global leader in stablecoin transaction volume. The percentage of the population using stablecoins is estimated to be somewhere between 19% and 23% (roughly 8 to 9 million users). Stablecoins make up 61.8% of all local crypto transaction volume in the country, which is well above the global average of about 44%. Notably, up to 30% of the younger demographic (ages 18–35) use crypto wallets of one kind or another, so adoption is likely to increase over time as more young people enter adulthood.
If selling the Peso in favour of a digital dollar is favoured by a growing number of Argentinians, supply of Peso exceeds demand.
This places further pressure on the Peso and compounds the problem of the Argentinian government and central bank; it hurts the local currency. So, if stablecoins hurt the government’s control and worsen the Peso’s slide, why do they allow it?
The answer is that they don’t acquiesce willingly. They fight it constantly. But they are trapped by three brutal realities.
One may assume the buyer of Pesos is a random citizen. Often, it’s the Argentinian central bank trying to prop up its currency. When everyone sells Pesos, the price crashes. To stop hyperinflation, the central bank must spend its precious US dollar reserves to buy back those unwanted Pesos.
The more people buy stablecoins (digital dollars), the faster the central bank drains its real dollar reserves. Eventually, it runs out. At that point, capital controls (like Argentina has) go into full effect.
This is destabilizing for a national economy, which appears to support the finding of the BIS that stablecoin fails the Integrity test.
The Argentinian government is using whatever tools it has available to it in its fight against stablecoins adoption.
Capital controls have been introduced which limits access to official exchange markets. There are also tax obligations on crypto gains. Buying stablecoins on a decentralized exchange is untraceable and thus a method of evading capital controls, which is a legal violation. They monitor bank accounts.
But even this has limited effect as it has given rise to a Black Market (cuecas). The government can’t stop two people meeting in a parking lot to trade a stablecoin for a Peso.
There will always be demand for Peso because stablecoins are not legal tender in Argentina. It is all well and good storing wealth in dollar denominated digital assets, but for local living expense spending purposes, cash is still king. However, to add balance, it should be noted that stablecoins may be used as a medium of exchange for cross-border payments, remittances, and online services that reject local currency entirely (e.g., freelance platforms, international SaaS).
This raises another key issue. If a local freelancer is paid in stablecoin and immediately spends it on foreign hosting services, the transaction bypasses the local currency system entirely. This is a more profound threat to monetary sovereignty
The government has realized they cannot stop the leak. They cannot win because trust in their system is gone. Citizens don’t trust the Peso because the government prints too many, primarily because it spends more than it taxes. If the government banned stablecoins tomorrow, citizens would just buy physical US dollars (which the government has failed to stop for 70 years).
Stablecoins didn't create the distrust; they just made the escape easier.
So instead, they regulate the price of the leak. By forcing all stablecoin purchases to go through licensed exchanges that report to the tax authority, they capture data and fees (a fiat currency exit tax of sorts).
This would suggest that the BIS is right about the problem, but stablecoins persist because of deeper sovereign trust failures.
In this sense, the BIS's integrity critique is correct as a diagnosis of systemic risk. But it mistakes symptom for cause. Stablecoins do not create distrust; they monetize it. Even if stablecoins were banned, the underlying capital flight would continue through physical dollars. The BIS's proposed solution, a unified ledger controlled by central banks, does not address why citizens flee in the first place.
The Position of Governments in ‘Strong’ Economies
As has just been discussed, G20 central bankers (Emerging Economies) fear “digital dollarization”, a scenario where their citizens seamlessly abandon the local currency for digital US dollars, leaving the domestic central bank powerless to manage its own economy.
But what about G7 global policymakers?
These have split into two distinct camps: the Hardliners who align entirely with the BIS, and the Pragmatists who seek to co-opt stablecoins into the regulated financial system.
Led by Christine Lagarde, the ECB has been fiercely aligned with the BIS. The ECB views stablecoins as a direct threat to monetary sovereignty and the transmission of interest rates. Europe has deployed the MiCA (Markets in Crypto-Assets) regulatory framework, which places strict caps on the transaction volumes of non-euro-denominated stablecoins to protect the Euro.
In the UK, the Bank of England has designed a regulatory framework and is essentially saying: “If you want to operate here, you must meet bank-like safety standards, and if you do, we will let you play.”
The US position is highly nuanced. Because roughly 98% to 99% of all stablecoins are pegged to the US dollar, they drive massive demand for US debt. Issuers like Tether and Circle hold billions of dollars in short-term US Treasury bills. Consequently, US policymakers view stablecoins as an instrument that extends the global hegemony of the US dollar into the digital age. The focus in Washington is not on banning them, but on passing formal legislation to regulate them like banks or money market funds.
The US position creates a significant tension that is worth calling out. The BIS is a global institution; the US is a member. If the US wants stablecoins (because they drive demand for Treasuries), then the BIS's unified ledger vision, which would likely be controlled collectively, not unilaterally by the US, is geopolitically dead on arrival.
What Is The Future For Stablecoins?
When the BIS published its Annual Economic Report in June 2025, its tone was rigid: stablecoins were framed as fundamentally “unsound money” that could not be saved, even with regulation. The only viable path forward was a public-sector “unified ledger.”
Since then, the institution’s stance has evolved from pure dismissal to risk mitigation. In statements and research papers delivered by top officials, including BIS General Manager Pablo Hernández de Cos, the BIS has begun opening the door to structural solutions that were previously off the table, such as granting regulated stablecoin issuers access to central bank liquidity backstops and deposit insurance-type frameworks. Through initiatives like Project Agorá, the BIS is actively exploring how tokenized commercial bank deposits might co-exist and interoperate with private digital assets on shared platforms.
This evolution is not a retreat. It is a strategic pivot.
The BIS still maintains that stablecoins behave more like traded assets than true money. It has not conceded on singleness, elasticity, or integrity. But it has recognized a hard truth: banning stablecoins may be impossible. So instead, it is trying to domesticate them; to turn private digital dollars into regulated, backstopped, and ultimately controllable instruments.
Ultimately, stablecoins cannot replace cash, because their value is pegged to it. Stablecoins will always be a derivative of fiat currency. This means that they will never displace traditional payment rails such as credit card networks or systems, such as SWIFT, for cash cross-border transfers.
Fintech companies, such as ‘Wise’ and ‘dLocal’ represent the pragmatic middle ground, they are the "regulated on-ramps and off-ramps" that make stablecoins usable in the real economy. They are not fighting the BIS’s “Integrity” concerns; they are building a business that satisfies them.
dLocal
dLocal directly addresses the Integrity problem identified by the BIS. Unable to stop stablecoins, governments settle for regulating them and dLocal is the corporate embodiment of that regulatory capture. By building compliance, reporting, and licensed partners into the process, dLocal offers governments the ability to properly tax and monitor flows of stablecoin. It becomes a symbiotic relationship: win/win.
To that end, dLocal has launched "Stablecoin Full," an enterprise-grade API that allows global merchants to accept stablecoins at checkout, settle in USD or stablecoins, and send payouts across multiple emerging markets. It treats stablecoins as "just another local payment method". It is the formalization of the stablecoin "sandwich" (sender’s local currency → stablecoin → global transfer → recipient’s local currency).
dLocal's M&A strategy, such as the acquisition of AZA Finance (a leader in African stablecoin and OTC trading) demonstrates that the market is consolidating regulated infrastructure to capture this growing demand.
Wise
Wise fits into the "Elasticity" and "Singleness" debates.
For over a decade, Wise (formerly TransferWise) argued that stablecoins were unnecessary. Co-founder Taavet Hinrikus stated in 2018 that the company “hadn’t found anything which enables us to do what we do in a way that is cheaper or faster”.
Wise’s model uses local bank accounts to match payments without moving money across borders, yet it does rely on the traditional banking system.
In late 2025, Wise began to pivot. It recruited a “Digital Assets Product Lead” to integrate stablecoins, specifically to allow customers to “hold digital assets within their Wise account”. This was a direct response to the Trump-era GENIUS Act and the explosion of the stablecoin market to a $300 billion market cap.
If there’s demand, why ignore it?
It is important to stress that Wise is not becoming a crypto company; it is adding stablecoins as a rail while keeping its user-friendly fiat currency interface and regulatory compliance.
Wise’s pivot proves that even the most efficient fiat-layer fintech cannot ignore the growing popularity, speed and cost advantages of stablecoins. This “hybrid model” will see regulated entities using stablecoins as backend infrastructure to support their fiat currency operations.
Conclusion
Three conclusions emerge from this analysis.
First, the BIS’s three tests (singleness, elasticity, integrity) are valid diagnostic tools. They expose real structural weaknesses in stablecoins as a monetary foundation. The industry’s counter-arguments either miss the point (singleness) or defend a feature that is actually a liability for economic growth (elasticity).
Second, those weaknesses do not matter to a citizen in Argentina or Turkey. For someone fleeing a collapsing local currency, a stablecoin that is sometimes worth $0.98 is infinitely better than a peso that loses half its value in a year. The BIS’s critique is correct at the systemic level but irrelevant at the survival level.
Third, the geopolitical future of money will not be decided by technical merit alone. The United States wants stablecoins because they drive demand for Treasury debt. The BIS wants a unified ledger controlled by central banks. These two visions are incompatible. The outcome will depend on power, not on which side has the better argument.
It would appear that stablecoins are here to stay. Whether they remain a parallel shadow system or get absorbed into regulated finance is now a political question, not a technical one.
The emergence of companies like Wise and dLocal reveals the practical synthesis of the BIS critique and the industry's promise. dLocal wraps stablecoins in the regulatory 'Integrity' that the BIS demands, offering compliant on-ramps and off-ramps in volatile markets. Wise, long a defender of efficient fiat rails, now plans to add stablecoin as a new settlement option.
These are not victories for either side in the debate. They are the infrastructure of the compromise: regulated entities using digital currency to meet the needs of their customers without abandoning monetary oversight.
Interesting read-makes a strong point that “stable” mostly depends on confidence, reserve quality, and how quickly trust can break under stress.