Amid U.S. President Donald Trump's announcement to expand global dollar dominance using stablecoins, concerns are emerging within the industry that the growth of stablecoins could trigger a financial system crisis.
On the 24th (local time), Bloomberg reported that fears of a financial system collapse are arising due to the rapid growth of stablecoins.
In a video speech at a virtual asset conference held in New York on the 20th, President Trump said, "We will make the U.S. the capital of virtual assets and dominate virtual assets and next-generation financial technologies," adding, "Dollar-based stablecoins will help strengthen dollar dominance. I urged Congress to pass legislation related to stablecoins."
In response, the industry points out that the stablecoin sector, which President Trump is focusing on, is vulnerable to large-scale bank runs similar to those that occurred during past financial crises. Stablecoin reserves are usually composed of highly liquid assets such as cash or short-term government bonds, but sometimes include risky assets like Bitcoin and corporate bonds. In the event of an asset market crisis, if the cashing out of stablecoins surges, stablecoin issuers will be forced to urgently sell the assets they hold.
Lisa Cook, a member of the U.S. Federal Reserve Board, said, "If a bank run occurs on a large stablecoin, it could cause significant market turmoil. It is especially dangerous if the reserve assets are linked to other money markets."
Democratic Senator Elizabeth Warren also criticized the 'U.S. Stablecoin National Innovation Framework Act,' stating, "This bill lacks basic safeguards to prevent stablecoins from collapsing the entire financial system."
Some voices even warn that events similar to those that occurred with money market funds (MMFs) during the 2008 financial crisis could be repeated. At that time, the net asset value (NAV) per share of the $62.6 billion Reserve Primary Fund fell below $1 due to the bankruptcy of investment bank Lehman Brothers, triggering a massive bank run.
Bloomberg reported, "If stablecoin-related legislation passes, issuers will have to back coins one-to-one with assets such as cash, short-term bonds, repurchase agreements (RPs), and money market funds," adding, "Most industry experts agree that the legislation will improve the quality of assets held by stablecoin issuers and reduce the risk of bank runs, but there are also concerns that it will not solve the fundamental problems of stablecoins."
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