Stablecoin stress could move from crypto into banks and fixed-income markets if confidence in reserves breaks, the ECB warned.
The European Central Bank (ECB) warned that large stablecoins could trigger runs, pressure banks and even spill into bond markets, naming Tether and Circle as examples of different reserve risks.
Isabel Schnabel, a member of the ECB’s executive board, said in a June 1 speech at the 2026 Bank of Korea International Conference on Central Banks and the Future of Money that although stablecoins promise faster payments, they could still raise financial stability risks.
Stablecoins may appear safe due to a promise of full redeemability, but Schnabel argues that such safety will depend on the reserves’ quality and liquidity.
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Tether, Circle Face Different Risks
Schnabel pointed to Tether as an example of a stablecoin with riskier reserve exposure:
“Tether, for example, holds parts of its reserves in relatively illiquid and risky assets, including commodities, loans and crypto-assets, making it more vulnerable to a loss of confidence in the quality or liquidity of those reserves – much like the Bank of Amsterdam in the second half of the 18th century.”
In contrast, Schnabel referred to Circle’s USDC▼$0.9998 as a stablecoin that mostly backs its reserves in sovereign bonds and repos, which would help mitigate issues related to reserve quality but would still pose spillover risks to bond and fixed-income markets during massive redemption activities.
These activities could cause the sale of sovereign bonds, and create “spillovers to sovereign debt markets and broader fixed-income markets,” she said.
The ECB official also pointed to USDC’s 2023 depeg incident after Silicon Valley Bank failed, saying part of its reserves were held as deposits at the bank and that the episode raised doubts about the availability of those assets.
Read more: Expert Warns of Liquidity Risks for Tether and Circle
