Stablecoins Are Moving Out of Crypto’s Back Room

Stablecoins began as crypto’s answer to crypto’s biggest problem, wild price swings. Now they are raising a much bigger question about what money itself should become. Once used mainly to move value around crypto markets, these digital tokens are increasingly being considered for payments, cross-border transfers and tokenised finance. The Bank of International Settlements (BIS) argues that tokenisation can enable programmable payments, atomic settlement and around-the-clock operations, while warning that stablecoins still struggle to reproduce some foundations of trusted money. The debate has therefore shifted. Are stablecoins simply better-regulated cryptoassets, or tomorrow’s financial infrastructure?

The Digital Dollar That Isn’t Quite a Dollar

A stablecoin is a digital token designed to keep a steady value against a reference asset, usually a currency such as the dollar or euro. Yet the reassuring label hides very different machinery. Fiat-backed coins hold reserves such as cash and government securities, commodity-backed versions reference assets such as gold, while algorithmic designs rely on mechanisms intended to balance supply and demand.

Crucially, a stablecoin is not simply a bank deposit wearing digital clothes. Tokenised deposits remain liabilities of regulated commercial banks, while a Central Bank Digital Currency (CBDC) is a liability of a central bank. Bitcoin, meanwhile, has no promise of stable value. The BIS argues that tokenised deposits retain a stronger connection to the existing two-tier monetary system because interbank settlement can still occur through central-bank accounts.

This points towards a fascinating “multi-money” future in which stablecoins, tokenised deposits and central-bank money coexist on programmable platforms. For a business receiving £1 million, the distinction matters. A bank deposit is a claim on a bank. £1 million in stablecoins is a claim shaped by the issuer, its reserves, redemption arrangements and the technology carrying the token.

What Happens When Confidence in the Peg Breaks?

The word “stable” can be dangerously comforting. A stablecoin’s peg is a promise, not a law of nature, and that promise depends on confidence, liquid reserves and reliable redemption. TerraUSD demonstrated the extreme case in 2022 when its algorithmic mechanism unravelled and the token collapsed. Yet asset-backed coins are not immune. In March 2023, USDC fell below its dollar peg after part of its reserves became trapped at the failing Silicon Valley Bank.

A digital run can also move at extraordinary speed. Stablecoins trade around the clock, while some reserve assets still settle only during conventional market hours. If holders rush for the exit, issuers may have to sell reserves quickly, potentially spreading stress into government bond markets.

The bigger risk is interconnectedness. One token may rely on banks, custodians, reserve assets, blockchains, exchanges, wallets and smart contracts. The European Central Bank (ECB) warned in 2025 that stablecoin vulnerabilities and links with traditional finance could generate wider spillovers.

For businesses, the question is deceptively simple. If £1 in stablecoin requires constant reassurance that it remains worth £1, how money-like is it really?

From Crypto Experiment to Regulatory Business

Stablecoins are discovering that becoming money-like means acquiring money-like regulation. In the EU, the Markets in Crypto-Assets Regulation (MiCA) has brought asset-referenced tokens and e-money tokens firmly inside the regulatory perimeter. Issuers require appropriate authorisation, while rules address governance, reserves, custody and redemption. Significant tokens face additional requirements and direct European Banking Authority (EBA) supervision.

The UK is taking a different route. Financial Conduct Authority (FCA) rules published in June 2026 cover UK-issued qualifying stablecoins, including backing assets, safeguarding and redemption. If a stablecoin becomes widely used for payments and potentially threatens financial stability, HM Treasury can recognise it as systemic. The Bank of England and FCA would then regulate the issuer jointly. The Bank’s June 2026 framework even proposes a £40 billion temporary issuance guardrail for each systemic stablecoin.

Yet regulation becomes harder when tokens cross borders effortlessly. A dollar stablecoin issued outside Europe could still become widely used by European businesses. Who ultimately controls the money circulating inside an economy if its issuer sits elsewhere?

That turns stablecoin regulation into something bigger than consumer protection. For the EU and UK, the debate increasingly concerns financial stability, monetary sovereignty and who controls the infrastructure through which tomorrow’s money moves.

Could Private Money Reshape Banking and Payments?

Stablecoins become far more interesting when they stop being a crypto story and start becoming a banking story. The Bank of England argues that they could support faster, cheaper and more flexible services, including cross-border payments and programmable transactions. For a company paying an overseas supplier, 24-hour digital settlement could be compelling.

Success, however, creates its own risks. If households and businesses move substantial balances from bank accounts into stablecoins, banks could lose deposits that help fund lending. The ECB warns that large-scale adoption could make deposits more volatile, constrain credit and affect monetary-policy transmission.

Europe faces another concern. Dollar-denominated stablecoins dominate the market, raising the possibility that European payments and tokenised finance become increasingly dependent on private, non-European money. The ECB says nearly 90 per cent of the stablecoin market is controlled by just two issuers, highlighting another paradox.

Stablecoins promise decentralisation, yet their success could concentrate enormous influence among a few issuers, wallets and blockchain networks. The ultimate disruption may therefore be unexpected. Instead of eliminating systemically important financial institutions, stablecoins could create new ones.

Moving Beyond Payments

The next stablecoin battleground may not be the checkout, but the machinery behind financial markets. In a tokenised economy, securities, bonds, funds and collateral can exist on digital platforms, creating demand for an equally digital “cash leg” to settle transactions. Stablecoins could fill that role, particularly where smart contracts make payments programmable and atomic settlement allows an asset and its payment to change hands together.

That could eventually extend to machines paying machines, or AI agents making authorised payments within preset limits. Yet stablecoins have no guaranteed monopoly. Tokenised commercial-bank deposits and central-bank money offer competing models with closer links to established monetary institutions.

Project Agorá demonstrates the competition. In July 2026, central banks and financial institutions completed real-value cross-border tests using tokenised commercial-bank deposits and central-bank reserves, with average settlement taking about 80 seconds. Europe has moved further still. In September, the Eurosystem launched Pontes, enabling tokenised asset transactions to settle in central-bank money.

The strategic question is therefore shifting. Businesses should ask not simply whether tokenisation will grow, but which form of digital money will become its trusted settlement layer.

The Winner May Not Look Like Crypto at All

Stablecoins began as an answer to cryptocurrency volatility. They have become an experiment in how digital money itself might work. Yet technology alone will not determine their future. Reserves, redemption, regulation, interoperability and, above all, trust will matter just as much. The BIS argues that innovation must preserve the foundations that make money trustworthy, while the Bank of England is building similar principles into its stablecoin regime. Businesses should therefore ask a bigger question than whether to use stablecoins. Which forms of digital money will customers, suppliers and markets trust when finance becomes increasingly tokenised?

And what about you…?

  • If your organisation received or held stablecoins, how would you assess the issuer, reserves, redemption arrangements, custody and operational risks involved?
  • Do you think current EU and UK regulation strikes the right balance between encouraging stablecoin innovation and protecting consumers and financial stability?