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From Par to Pressure: Liquidity, Redemptions, and Fire Sales with a Systemic Stablecoin

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  • Mr. Marco Gross
  • Richard Senner

Abstract

Fiat-backed stablecoins are expanding, and their issuers may attain systemic relevance as reserve portfolios grow and as they become increasingly intertwined with financial markets. This paper analyzes the resulting risks and the design choices that can mitigate them. A detailed financial-economics discussion forms the core of the paper. It is paired with a model that captures the feedback loop between a systemic stablecoin and financial markets: redemptions deplete reserves, may prompt asset sales, depress bond market prices, thereby erode a stablecoin issuer’s solvency, and in turn amplify further redemptions. The model links design dials—capital and liquidity buffers, reserve composition, redemption gates, and others—to outcomes such as run frequency, fire sale intensity, and bond market volatility. The economics discussion and model analysis conclude that robust prudential design can substantially stabilize stablecoins and their surrounding market environment.

Suggested Citation

  • Mr. Marco Gross & Richard Senner, 2026. "From Par to Pressure: Liquidity, Redemptions, and Fire Sales with a Systemic Stablecoin," IMF Working Papers 2026/005, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2026/005
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