China, 29 November 2025 – The world of stablecoins, the dollar-pegged tokens that sit at the crossroads of crypto and traditional finance, is bursting at the seams.
After months of blistering growth in token issuance, the sector now faces a collision of market, disclosure and policy problems that risk turning price-stable instruments into sources of systemic instability.
China’s central bank has added to the alarm in recent days, publicly flagging stablecoins as a potential vector for money-laundering, unauthorized cross-border transfers and other illicit activity and pledging a tougher clampdown on virtual-currency activity.
The People’s Bank of China reiterated that such tokens carry no legal tender status and warned authorities would intensify enforcement to protect financial stability.
That regulatory nervousness is matched by market scrutiny. The world’s largest stablecoin, Tether’s USDT, suffered a public setback when Standard & Poor’s (S&P) Global downgraded its reserve assessment to the weakest rating on the agency’s scale, citing a growing share of higher-risk assets in Tether’s backing and uneven disclosure around custodians and counterparty arrangements.
The downgrade underlines a basic worry: if issuers substitute safe liquid assets with riskier holdings, a sudden market shock could leave tokens under-collateralised at the worst possible moment.
Policymakers and international standard setters have not been idle. The Financial Stability Board’s recent thematic review shows that jurisdictions are at wildly different stages of implementing the FSB’s framework for crypto-assets and stablecoins, some have advanced disclosure and reporting tools, others lag on cross-border cooperation and anti-money-laundering controls.
The message: global coordination has improved, but gaps remain that could be exploited in times of stress.
In parallel, national lawmaking has moved fast. The United States adopted the GENIUS Act in mid-2025, a landmark law creating an explicit federal framework for payment stablecoins and establishing a supervisory structure for issuers and their banking partners. That framework aims to push stablecoins into the regulated payments world, but its ultimate success depends on how rules are written and enforced, and on whether foreign issuers comply or pivot toward less-regulated corridors.
Europe’s central banks and supervisors are sounding similar cautions. The European Central Bank recently highlighted the rapid growth in stablecoins and warned that structural weaknesses, interconnectedness with banks, weak governance in some issuers, and limited crisis-management tools, could pose real financial-stability risks if left unaddressed.
The ECB’s view echoes the IMF and G20-level assessments that call for rigorous disclosure, prudential backstops and cross-border crisis plans.
Why this matters now
Stablecoins act as the plumbing for crypto markets and, increasingly, for payments and cross-border flows. Rapid issuance, net new supply jumped sharply through 2025, paired with opaque reserve practices and a lack of consistent international rules, makes the system fragile.
If a major issuer faces a run, the contagion could spread quickly into banks, money markets and corporate treasuries that use stablecoins for short-term liquidity or settlement.
Where the risks cluster