Stablecoin Panic is becoming a focal point of concern for European financial authorities. The Dutch central bank governor, Olaf Sleijpen, has issued a warning that the rapid expansion of dollar-pegged stablecoins could soon pose serious challenges to the European Central Bank’s (ECB) policy-making. Speaking to the Financial Times, Sleijpen highlighted the potential systemic relevance of stablecoins within Europe’s financial ecosystem.
As these digital assets continue to grow, their destabilization could lead to widespread financial instability, impacting the broader economy and inflation rates. “If stablecoins are not that stable, you could end up in a situation where the underlying assets need to be sold quickly,” Sleijpen remarked, emphasizing the potential for rapid liquidation to exacerbate market stress.
The Potential Impact on ECB Policy
The Stablecoin Panic scenario suggests that the ECB may need to reconsider its monetary strategies if the shocks from these digital assets become significant. While it remains uncertain whether such a situation would necessitate interest rate hikes or cuts, the possibility of having to “rethink monetary policy” is on the table, according to Sleijpen.
Currently, the stablecoin market is experiencing significant growth. Data from CoinGecko indicates a nearly 50% rise in market capitalization this year, reaching a total valuation of $310 billion. Notably, Tether’s USDt has soared from a $127 billion market cap in November 2024 to $183 billion, a 44% increase. Similarly, USDC has doubled its market cap from $37 billion to $74 billion during the same period.
Future Growth and Economic Relevance
The U.S. Department of the Treasury has projected that stablecoins could achieve a $2 trillion market cap by 2028. As Stablecoin Panic potentially looms, their influence on Europe’s economic outlook could become more pronounced.
Concerns regarding the rise of dollar-backed stablecoins have been echoed by ECB Executive Board member Piero Cipollone. He suggested that introducing a central bank digital currency (CBDC) might safeguard monetary sovereignty in the eurozone. A digital euro could mitigate the risk of foreign currency stablecoins becoming a mainstream medium of exchange in Europe.
Italy’s Minister of Economy and Finance, Giancarlo Giorgetti, also voiced apprehensions about stablecoins, noting their potential to destabilize European financial stability more significantly than trade tariffs.
Addressing Financial Instability Risks
Despite these concerns, Sleijpen’s remarks point to a growing risk: stablecoin issuers could become catalysts for financial instability. Should major issuers offload reserves at scale, the resulting contagion could affect liquidity conditions, asset prices, and inflation.
In a related note, Nobel Prize-winning economist Jean Tirole recently warned that governments might face multibillion-dollar bailout pressures if major stablecoins were to unravel.
As the stablecoin sector continues to expand, the Stablecoin Panic scenario underscores the need for eurozone policymakers to remain vigilant and proactive in addressing these emerging risks.
