Bansal & Thivaios (May 2026)

BTRM Faculty Opinion 

Stablecoin Payment Networks: Silver Bullets or Shotgun Pellets? – [Article 1/2]

“The difficulty of international trade lies not in the exchange of goods

but in the exchange of currencies”

John Maynard Keynes, 1944

The Digital Bridge: Stablecoins, U.S. Debt, and the Future of Global Finance

In 2026, the financial landscape has undergone a silent revolution. stablecoins—digital assets designed to maintain a 1:1 parity with the U.S. dollar—have evolved from speculative tools into a potentially transformational or destabilising pillar, depending on the perspective of the beholder. By combining the 24/7 programmability of blockchain with the perceived safety of fiat currency, stablecoins have the potential to become the “digital wrapper” for the world’s most liquid assets.

The Business Model: Monetizing Stability

The success of stablecoin issuers like Tether and Circle is built on a model of Net Interest Margin that mirrors traditional banking but with significantly higher efficiency. When a user “mints” a stablecoin, they provide the issuer with fiat currency. The issuer then invests this “float” into high-quality liquid assets (HQLA), primarily short-term U.S. Treasuries. In a high-interest-rate environment, this “carry trade” is immensely profitable. Issuers capture the yield from these government bonds while providing the user with a non-interest-bearing digital token. This revenue is further supplemented by redemption fees and integration partnerships with global payment networks, creating a multi-billion-dollar industry built on the spread between digital utility and sovereign debt yields.

The “Treasury-Industrial Complex”

Perhaps the most significant development in 2026 is the emergence of stablecoin issuers as systemic players in the U.S. sovereign debt market. Under the regulatory oversight of the GENIUS Act, compliant issuers are mandated to back their tokens with transparent, low-risk reserves. This has effectively turned stablecoin issuers into a global top 10 holder of U.S. Treasuries, often surpassing the sovereign holdings of industrialized nations like Germany or South Korea. This relationship creates a unique symbiosis:

• A Built-in Buyer: Issuers provide a constant, inelastic demand for T-bills, helping the U.S. government finance its deficit even when other foreign creditors might pull back, and, in theory, help keep the short-term interest rates lower than they would be otherwise.
• Concentration Risk: This creates a “shadow banking” risk. A sudden, massive “run” on a major stablecoin could force a fire sale of billions in Treasuries, potentially destabilizing the repo markets and spiking yields across the broader financial system.
• Monetary Policy Transmission: The Federal Reserve’s ability to control the money supply could become more complex, as a large portion of the “money” circulating in the digital economy would be tied up in government debt rather than bank deposits. The challenge is more acute with emerging markets where a shift to US dollar based stablecoins can effectively dollarize the local economy and rendering traditional monetary tools ineffective. 

Stablecoins’ Stumbling Block

Leading stablecoins are structurally misaligned with heavily regulated Financial Market Infrastructure (FMIs) such as Fedwire, CHIPs, and CLS. Regulators emphasize that while stablecoins offer speed, these private tokens pose severe balance sheet, liquidity, and operational risks compared to traditional, state-backed payment systems. Table below summarizes key differences between private stablecoins vs. regulated FMIs:

 Misalignment with Traditional Finance

Operating models and balance sheets of today’s dominant stablecoins do not meet the legal and operational standards required of systemically important FMIs. Their decentralized nature conflicts with the centralized risk-management mechanisms regulated FMIs rely on.

The structure of their balance sheets is also misaligned. Stablecoins hold hundreds of millions in uninsured bank deposits and typically take one to three business days to honour fiat redemptions. The securities they hold may have relatively short maturities but would still need to be sold in the event of large-scale redemptions, with the potential to trigger dislocations in securities markets. As a result, current stablecoin arrangements offer neither the credit quality nor the immediacy of liquidity required of wholesale settlement assets.

The Bank for International Settlements and the IMF have noted that the rapid growth of US dollar-pegged stablecoins risks accelerating dollarisation in emerging markets. This forces central banks to worry about capital flight and loss of monetary sovereignty.

Despite the FMI gap, stablecoins are increasingly used by fintechs to bypass incumbent legacy payment systems and high FX fees. Their ability to settle 24/7 means they are gaining significant traction in international remittances and cross-border commercial payments and therefore seen as disrupting traditional finance.

This article is a 2-part series on stablecoins. Based on the foundations outlined herein, the subsequent piece in this series discusses stablecoins as separate currency networks, outlines the layers involved in transactions and provides strategic considerations for Bank Treasurers.