FSB Flags Risks in the Growing Stablecoin Market
The Financial Stability Board (FSB), the international body that monitors the global financial system, has warned that stablecoins could create significant challenges for authorities during a market crisis. Its latest report highlights gaps in cross-border coordination and the potential difficulty of managing redemptions if a major stablecoin issuer encounters financial distress or becomes insolvent.
The watchdog said global stablecoins have not yet been tested under severe financial stress or insolvency. At the same time, national regulatory frameworks are developing at different speeds, raising questions about how authorities would coordinate a response and how token holders might recover their funds if an issuer failed. The findings are detailed in the FSB’s official report on global stablecoin arrangements.
The warning comes as the stablecoin market continues to expand. According to the figures in the report, total stablecoin market capitalization grew from approximately $206 billion at the start of 2025 to $306 billion. Most of that value is concentrated in tokens pegged to the U.S. dollar.
Why Stablecoins Need International Coordination
Stablecoins are digital tokens designed to maintain a relatively stable value by referencing an asset such as a national currency. They are widely used in cryptocurrency markets to move between digital assets and cash-like holdings. They could also support faster and cheaper payments, including cross-border transfers, as adoption expands.
However, stablecoin arrangements often operate across multiple countries. Issuers, reserve assets, service providers and token holders may all be located in different jurisdictions, meaning that a problem at one company can require coordination among several national authorities.
FSB Chair Andrew Bailey highlighted this challenge in an accompanying letter. He wrote that “Global stablecoin arrangements are inherently cross-border, yet national regulations are taking shape at different speeds and cross-border cooperation in this area is still in its infancy.” The FSB chair’s letter emphasizes the need for authorities to improve cooperation as these arrangements grow.
Multiple Issuers Could Complicate Redemptions
The report identifies particular risks in multi-issuer structures. Under these arrangements, affiliated companies can issue the same stablecoin and share liability for it while holding reserve assets in separate jurisdictions.
This structure can create difficulties if many holders seek to redeem their tokens through one issuer at the same time. The company facing the redemption requests may not have enough immediately available reserves in its own jurisdiction, even if sufficient assets exist elsewhere within the wider arrangement. Moving those assets across borders during a crisis could be difficult or delayed.
Legal uncertainty can add another layer of risk. If one issuer becomes insolvent, authorities and creditors may face questions about which country’s insolvency rules apply and how claims should be handled. Without effective coordination, resolving these issues could become more complicated precisely when holders are seeking access to their funds.
Around-the-Clock Trading Can Clash With Reserve Markets
Stablecoins can be transferred and traded around the clock, but the traditional markets for assets backing them do not necessarily operate continuously. This mismatch could become important during a sudden surge in redemptions.
If holders rush to exchange stablecoins for conventional money while reserve assets cannot be sold or transferred quickly enough, the issuer may struggle to meet demand. That pressure could cause a stablecoin to trade below its intended peg, undermining confidence and encouraging further redemptions.
The FSB also noted that liquid secondary markets can help stabilize prices. When a token trades below its intended value, arbitrage traders may buy it at a discount and redeem it for the underlying value, helping move the market price back toward the peg. However, this mechanism depends on sufficient liquidity and functioning redemption arrangements; it cannot be assumed to work smoothly under every crisis scenario.
How Stablecoin Stress Could Reach Traditional Finance
Problems at a large stablecoin issuer could extend beyond cryptocurrency markets. If an issuer needed to meet substantial redemption requests, it might have to sell reserve assets rapidly or withdraw deposits held at banks.
Forced asset sales could add pressure to financial markets, particularly if many institutions were seeking liquidity at the same time. Large bank deposit withdrawals could also affect traditional financial institutions. These channels mean that stablecoin distress could potentially spread beyond token holders and crypto trading platforms.
The scale of any spillover would depend on factors such as the size of the affected stablecoin, the composition and liquidity of its reserves, the structure of its issuer group, and the response from regulators. The report highlights these vulnerabilities as risks requiring preparation, rather than claiming that a crisis is already underway.
Limited Data Makes Oversight More Difficult
The FSB also pointed to data limitations that can make it harder to monitor stablecoin risks internationally. Cryptocurrency transactions often use pseudonymous wallet addresses rather than publicly identifying account holders, making it difficult to establish where holders are located and which jurisdiction’s rules apply.
Although blockchain activity can be publicly visible, the identity and location of participants may not be immediately apparent from transaction records alone. Authorities may therefore struggle to build a complete picture of exposure across borders, especially when issuers and intermediaries operate through multiple legal entities.
Better information sharing could help regulators understand how risks are distributed, identify emerging pressure on issuers and coordinate responses. Monitoring arrangements would be particularly important for multi-issuer structures in which reserve assets, redemption obligations and customers are spread across different countries.
FSB Calls for Better Planning Ahead of G20 Meeting
The FSB is calling for stronger cross-border information sharing, more effective monitoring and better contingency planning for stablecoin distress or failure. The goal is to help authorities prepare for potential disruptions before a crisis occurs, rather than having to resolve legal and operational questions after redemptions have accelerated.
The FSB’s recommendations are not legally binding, but its members generally commit to implementing agreed standards through their national frameworks. The organization’s official overview of its role and mandate explains how it coordinates international financial policy and promotes consistent approaches to financial stability.
The report arrives just days before the G20 finance ministers and central bank governors’ meeting scheduled for October 15. Bailey, who also serves as governor of the Bank of England, has previously warned that international progress on stablecoin rules has stalled.
The central message is that the stablecoin market’s expansion makes coordination more important. While stablecoins may support payments and digital-asset markets, their cross-border structures can complicate redemptions, insolvency proceedings and financial oversight. The FSB wants regulators to strengthen cooperation and prepare for those challenges before a severe stress event tests the system.
