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Stablecoins have quietly grown into the world’s largest and least regulated offshore dollar market, creating a parallel financial system that now influences liquidity, capital flows and, increasingly, central bank thinking.

As more of these dollar-linked tokens are digitally minted into international payment systems, policymakers are confronting a problem they did not anticipate: privately-operated dollar instruments that behave like money but sit entirely outside the orbit of any central bank.

The rise of a global offshore dollar network
The stablecoin has risen to prominence at a pace unmatched by any other form of digital money. According to data from Arkham, the USD-pegged stablecoin market has reached almost $300bn, up nearly 60% in the past twelve months. Tether alone accounts for more than $180bn in circulating supply, with its usage concentrated in markets including Turkiye, Brazil, Nigeria and much of Southeast Asia.

Functionally, this is a digital resurrection of the classic 'eurodollar' trade: the massive shadow market of US dollars held in foreign banks during the twentieth century. Like their paper ancestors, these tokens act as offshore dollars. They are issued outside the US Federal Reserve's reach and move across borders without ever touching domestic banking rails.

But there is a critical distinction. While the old eurodollar system moved at the speed of fax machines and correspondent banks, this new ecosystem is instant, borderless, and controlled by private corporations operating in a jurisdictional vacuum.

Regulators still often describe stablecoins as a crypto-specific issue. The evidence shows something broader: they have become the preferred dollar instrument for markets that lack access to correspondent banking, face FX restrictions or operate in high-inflation economies.

Europe wakes up to the macro risk
A shift in tone emerged this week from the European Central Bank. In an interview with the Financial Times, Dutch central bank governor Olaf Sleijpen warned that a disorderly run on major stablecoins could force the ECB to reconsider interest rate policy.

“If stablecoins in the US increase at the same pace as they have been increasing, they will become systemically relevant at a certain point,” he said. He added that if stablecoins failed to maintain their pegs, issuers might be forced into rapid sales of their underlying reserves, primarily short-dated US Treasuries. “If stablecoins are not that stable, you could end up in a situation where the underlying assets need to be sold quickly.”

The consequence, Sleijpen noted, could be pressure on financial stability, inflation and borrowing conditions in Europe, potentially requiring an adjustment of monetary policy. His uncertainty was striking. “I don’t know in which direction we would be going,” he said.

His comments align with a broader shift inside the ECB, where senior officials have begun warning that private digital currencies could weaken monetary sovereignty if they become widely used. In an October 2025 speech, ECB Executive Board member Fabio Panetta cautioned that the rise of private digital currencies “beyond the reach of supervision” risked undermining financial stability and transferring seigniorage away from public institutions.

Nobel Prize winner Jean Tirole has gone further, arguing that governments may be forced into multibillion-dollar bailouts if private stablecoin issuers fail to meet redemptions or mismanage reserves.

A monetary system with no single supervisor
Despite their size, stablecoins inhabit a regulatory void. They are not subject to the capital, liquidity or supervisory frameworks that apply to banks. Nor do they fall neatly under the rules that govern money market funds, even though their reserves often mimic the composition of those funds.

Authority is fragmented across regions.
• In the US, the passage of the GENIUS Act in July finally established a federal definition for payment stablecoins, enforcing 1:1 reserve models and removing the existential threat of an SEC enforcement action.
• In the EU, MiCA regulates euro-denominated tokens but does not meaningfully touch the global supply of US dollar stablecoins.
• In Asia, Singapore, Hong Kong and Japan have developed separate rules, none of which govern cross-border circulation.
• Across Africa and Latin America, stablecoins function primarily as dollar substitutes, with no supervisory perimeter at all.

This creates a system where hundreds of billions of dollars circulate without a lender of last resort and without a jurisdiction willing to take responsibility when instability hits.

As early as 2020, Neha Narula, director of the Massachusetts Institute of Technology’s Digital Currency Initiative, warned that the growing reliance on privately issued digital dollars risked eroding public safeguards. In a comment letter to US regulators, she cautioned that “we are increasingly relying on private institutions to issue public-money-like services, without the protections you expect from cash or deposit insurance."

The private money problem
Stablecoins today are not only used as trading collateral. They have become instruments for payroll, remittances, B2B settlement and treasury management. Binance Pay’s own data, published this week, reported more than 20mn merchants globally and 98% of its B2C transactions executed in stablecoins.

Meanwhile, institutional pilots are accelerating. UBS is expanding its tokenized cash offerings through its UBS Digital Cash platform, and has begun collaborating with Ant International on cross-border treasury operations and tokenized deposit experiments.

These experiments point toward another convergence: banks, fintech firms and crypto issuers are all trying to create the same thing, a digital dollar that moves across borders without relying on the legacy correspondent banking network.

The difference is that stablecoins got there first, at scale.

The run scenario
The nightmare scenario for central banks is a run on the largest stablecoins that forces a fire sale of the assets backing them. While issuers like to showcase their Treasury bill portfolios, the real danger lies in the "cash equivalents" that are harder to sell when the market panics.

This includes commercial paper (short-term, unsecured IOUs issued by corporations to pay their bills) and money market holdings (funds that pool these debts together). Unlike US Treasuries, which can be sold instantly in any volume, commercial paper has no guaranteed buyer in a crisis. It is a fair-weather asset.

The risk is not theoretical. During the 2022 collapse of TerraUSD, Tether faced a massive wave of redemptions. While it successfully honoured withdrawals, the company later disclosed that it had to liquidate billions of dollars in commercial paper to maintain its peg. It was a stress test that the market survived, but one that regulators are desperate to avoid repeating.

If today’s market, now far larger, experienced a similar shock, the consequences would extend beyond crypto exchanges. Treasury markets could feel the strain. FX markets in emerging economies could see volatility. Dollar liquidity outside the US could tighten abruptly.

This is why academics, including Gary Gorton and Jeffrey Zhang, have described stablecoins as “banking without banking regulation” in a widely cited paper.

Regulators still treat stablecoins as a peripheral issue
Policy responses remain piecemeal.

The US is focused on exchange enforcement and ETF approvals. The EU is focusing on euro tokens rather than dollar tokens. Asian jurisdictions are competing to attract issuers. Global bodies, including the International Monetary Fund (IMF) and Financial Stability Board (FSB), have issued principles rather than enforceable standards.

The result is a growing gap between usage and oversight. Stablecoins have evolved into systemically relevant instruments before regulators have decided what they are.

A dual money era emerges
The world now operates with two distinct forms of dollars.
• Onshore dollars, governed by the Federal Reserve.
• Offshore crypto dollars, governed by issuers, market demand and liquidity conditions.

As stablecoins continue to grow, the question facing policymakers is increasingly unavoidable: what happens when private money becomes too large to ignore and too big to contain ?

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