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Stablecoins: risks, potential and regulation

Author

Listed:
  • Douglas Arner
  • Raphael Auer
  • Jon Frost

Abstract

The technologies underlying money and payment systems are evolving rapidly. Both the emergence of distributed ledger technology (DLT) and rapid advances in traditional centralised systems are moving the technological horizon of money and payments. These trends are embodied in private “stablecoins”: cryptocurrencies with values tied to fiat currencies or other assets. Stablecoins – in particular potential “global stablecoins” such as Facebook’s Libra proposal – pose a range of challenges from the standpoint of financial authorities around the world. At the same time, regulatory responses to global stablecoins should take into account the potential of other stablecoin uses, such as embedding a robust monetary instrument into digital environments, especially in the context of decentralised systems. Looking forward, in such cases, one possible option from a regulatory standpoint is to embed supervisory requirements into stablecoin systems themselves, allowing for “embedded supervision”. Yet it is an open question whether central bank digital currencies (CBDCs) and other initiatives could in fact provide more effective solutions to fulfil the functions that stablecoins are meant to address.

Suggested Citation

  • Douglas Arner & Raphael Auer & Jon Frost, 2020. "Stablecoins: risks, potential and regulation," Financial Stability Review, Banco de España, issue Autumn.
    • Handle: RePEc:bde:revisl:y:2020:i:11:n:4
    Note: 39
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    References listed on IDEAS

    as
    1. Raphael Auer & Stijn Claessens, 2018. "Regulating cryptocurrencies: assessing market reactions," BIS Quarterly Review, Bank for International Settlements, September.
    2. Raphael Auer & Rainer Boehme, 2020. "The technology of retail central bank digital currency," BIS Quarterly Review, Bank for International Settlements, March.
    3. Adachi, Mitsutoshi & Cominetta, Matteo & Kaufmann, Christoph & van der Kraaij, Anton, 2020. "A regulatory and financial stability perspective on global stablecoins," Macroprudential Bulletin, European Central Bank, vol. 10.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Office of Financial Research (ed.), 2021. "2021 Annual Report to Congress," Reports, Office of Financial Research, US Department of the Treasury, number 21-01, September.
    2. Vidal-Tomás, David, 2025. "Centralized exchanges & proof-of-solvency: The guardians of trust," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 103(C).
    3. Philippe Bergault & Louis Bertucci & David Bouba & Olivier Gu'eant & Julien Guilbert, 2024. "Automated Market Making: the case of Pegged Assets," Papers 2411.08145, arXiv.org.
    4. José Zapata Sevilla, 2024. "Analysing decentralised autonomous organisations (DAOs): limits and perspective," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(4), pages 425-436, December.
    5. Hui, Cho-Hoi & Wong, Andrew & Lo, Chi-Fai, 2025. "Stablecoin price dynamics under a peg-stabilising mechanism," Journal of International Money and Finance, Elsevier, vol. 152(C).
    6. Fernandez-Mejia, Julian, 2024. "Extremely stablecoins," Finance Research Letters, Elsevier, vol. 63(C).
    7. Bibi, Samuele, 2023. "Money in the time of crypto," Research in International Business and Finance, Elsevier, vol. 65(C).
    8. Saengchote, Kanis & Samphantharak, Krislert, 2024. "Digital money creation and algorithmic stablecoin run," Finance Research Letters, Elsevier, vol. 64(C).
    9. Dean Fantazzini, 2025. "Detecting Stablecoin Failure with Simple Thresholds and Panel Binary Models: The Pivotal Role of Lagged Market Capitalization and Volatility," Forecasting, MDPI, vol. 7(4), pages 1-47, November.
    10. Dionysopoulos, Lambis & Urquhart, Andrew, 2024. "10 years of stablecoins: Their impact, what we know, and future research directions," Economics Letters, Elsevier, vol. 244(C).
    11. Le, Thai Hong & Luu, Hiep Ngoc & Do, Dinh Dinh & Nguyen, Trung-Anh & Pham, Toan Canh, 2025. "On the connectedness between the uncertainty of central bank digital currency adoption and stablecoins," The North American Journal of Economics and Finance, Elsevier, vol. 79(C).
    12. Matteo Aquilina & Giulio Cornelli & Jon Frost & Leonardo Gambacorta, 2025. "Cryptocurrencies and decentralised finance: functions and financial stability implications," BIS Papers, Bank for International Settlements, number 156, May.
    13. Alistair Milne & Vivienne Lawack, 2024. "Digital assets in payments and transaction banking," Working Papers 11073, South African Reserve Bank.
    14. Gregory, Gadzinski & Alessio, Castello & Vito, Liuzzi & Patrice, Sargenti, 2024. "Break a peg! A study of stablecoin co-instability," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    15. Marcel Bluhm & Adrian Cachinero Vasiljevi'c & S'ebastien Derivaux & S{o}ren Terp H{o}rluck Jessen, 2024. "Real-time Risk Metrics for Programmatic Stablecoin Crypto Asset-Liability Management (CALM)," Papers 2401.13399, arXiv.org.
    16. Aquilina, Matteo & Frost, Jon & Schrimpf, Andreas, 2024. "Tackling the risks in crypto: Choosing among bans, containment and regulation," Journal of the Japanese and International Economies, Elsevier, vol. 71(C).

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