Stablecoin Crisis Could Wreck Global Finance, Fed Warns in New Report

The Fed warned that a stablecoin crisis could wreak havoc on the global economy and outlined the steps issuers must take to protect the status quo. 

AccessTimeIconNov 15, 2019 at 9:00 p.m. UTC
Updated Sep 13, 2021 at 11:42 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global event for everything crypto, blockchain and Web3.Register Now

The U.S. Federal Reserve Board on Friday warned that a stablecoin crisis could wreak havoc on the global economy and outlined the steps issuers must take to protect the status quo. 

The central bank’s prognosis – buried deep in the November edition of its semiannual “Financial Stability Report" – rests on a stablecoin worst case outcome: a run on the issuers, in which coin holders panic en-masse and demand the return of the fiat they staked. 

Stablecoins are a form of cryptocurrency that maintain their value by staking themselves to fiat reserves. While the volatility of bitcoin, the most widely-owned cryptocurrency, is a favorite talking point of its detractors, stablecoins are digital currencies backed 1:1 with a fiat asset or basket of currencies, and designed to maintain a steady value.

The report’s concern is that something could go wrong with the way the stablecoin works – be it, with operations, liquidity, or credit. “This loss of confidence could lead to a run,” it said.

“In an extreme scenario, holders may be unable to [liquidate], with potentially severe consequences for domestic or international economic activity, asset prices, or financial stability.”

Since the fraught launch of the Libra stablecoin concept in June, the Fed Governors, along with U.S. regulators and counterparts abroad, have been sounding alarm bells. Beyond the digital currency question, the integration with mass consumer social network could be disastrous, the report warns.

“Stablecoin initiatives that are built on existing large and cross-border customer networks, such as Facebook’s Libra, have the potential to rapidly achieve widespread adoption,” the report said, echoing comments made by Fed Governor Lael Brainard last month

But now condensed into a single document, the report consolidates and formalize regulators’ concerns and notes the steps required to prevent a stablecoin catastrophe. 

The Fed’s report said:

  • Issuers must disclose how their staking mechanism works
  • Issuers must protect customer data privacy while maintaining KYC records to prevent illicit use
  • Issuers must disclose their terms of service
  • Issuers must inform customers if they have any rights to the underlying asset

“As the Group of Seven has noted, ‘no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks outlined [in this report] are adequately addressed, through appropriate designs and by adhering to regulation that is clear and proportionate to the risks.’”

Federal Reserve image via Shutterstock


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.