Stablecoin market triples to $300 billion in 2 years, RBI flags risks to monetary sovereignty

According to the report released by the Reserve Bank of India on December 31, the surge in stablecoins comes at a time when global markets appear resilient on the surface but remain vulnerable to sharp corrections.

• Stablecoin market tripled to $300B, raising financial stability concerns
• Tether and Circle hold 85% of stablecoin market, raising concentration risk.
• Stablecoins risk digital dollarisation, settlement issues, and illicit activity

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The global stablecoin market has nearly tripled in size to around $300 billion in the past two years, even as the RBI warns that the rapid expansion of privately issued digital money could amplify financial stability risks, undermine monetary sovereignty, and expose vulnerabilities in both advanced and emerging economies, according to the recent Financial Stability Report.

According to the report released by the Reserve Bank of India on December 31, the surge in stablecoins comes at a time when global markets appear resilient on the surface but remain vulnerable to sharp corrections. Stretched asset valuations, high public debt, growing reliance on non-bank financial intermediaries, and rising interconnectedness between traditional finance and crypto markets are collectively keeping global financial stability risks elevated, despite subdued market volatility.

Stablecoins, crypto assets pegged to fiat currencies such as the US dollar or euro, have emerged as a central component of the crypto ecosystem, particularly following regulatory clarity in major jurisdictions between 2023 and 2025. Designed to maintain a stable value, they claim to function as reliable payment instruments and stores of value, offering faster settlement and lower transaction costs compared to traditional systems. However, regulators caution that these claims remain largely untested at scale.

The number of active stablecoins rose sharply from around 60 in mid-2024 to over 170 by mid-2025, while market capitalisation expanded from approximately $120 billion to $300 billion. Yet, the market remains highly concentrated. Nearly 99 percent of stablecoins are denominated in US dollars, and two issuers, Tether (USDT) and Circle (USDC), account for about 85 percent of total market capitalisation, raising concerns over concentration risk and systemic exposure.

Despite their name, stablecoins have shown persistent volatility.

Algorithmic stablecoins, in particular, have struggled to maintain their peg. Past episodes, including the collapse of TerraUSD in May 2022 and price dislocations during the US banking turmoil in March 2023, highlighted their vulnerability to confidence shocks. More recently, S&P Global Ratings downgraded Tether, citing higher exposure to risky reserve assets and gaps in disclosure.

Currently, stablecoins are used overwhelmingly within the crypto ecosystem. They account for over 80 percent of trading volumes on major centralised crypto exchanges, primarily serving as a medium to buy and sell other crypto assets and to provide liquidity. Their real-economy use cases remain limited, though cross-border payments are often cited as a growing application.

Advocates argue that stablecoins can improve cross-border payments by bypassing traditional correspondent banking networks, which are often slow and costly. Stablecoin transaction volumes tend to rise following periods of high inflation or exchange rate volatility, particularly in emerging markets. In economies with capital controls or restricted access to dollar accounts, dollar-pegged stablecoins offer an alternative store of value.

However, regulators warn that this trend could accelerate ‘digital dollarisation’, eroding domestic monetary control. Unlike traditional dollarisation, stablecoins can spread rapidly through digital channels and network effects, potentially weakening monetary policy transmission and undermining financial sovereignty, especially in emerging and developing economies.

The risks intensify as stablecoins expand into new areas such as tokenised securities and real-world assets. Tokenisation is projected to grow sharply over the next decade, and stablecoins are often positioned as the preferred on-chain settlement asset.

Policymakers, however, note that many of the claimed advantages, such as programmability and atomic settlement, stem from underlying blockchain technology and are not unique to stablecoins. Moreover, because stablecoins are tradable instruments whose prices can deviate from par, their reliability as settlement assets remains questionable.

From a financial stability perspective, stablecoins fall short of the core attributes of a sound monetary system—singleness, elasticity, and integrity. As privately issued instruments without central bank backing, stablecoins issued by entities of varying creditworthiness do not guarantee par convertibility. Evidence shows that stablecoins frequently deviate from their peg both intraday and end-of-day, fragmenting the payment system and increasing settlement risk.

Stablecoins are also susceptible to destabilising runs. The promise of on-demand redemption exposes issuers to liquidity and maturity mismatches, particularly when reserves are invested in market instruments such as US Treasuries. A sudden loss of confidence could force large-scale asset sales, transmitting stress to traditional financial markets. Given the high concentration among issuers and their growing demand for government securities, such spillovers could become systemic.

Another key concern is credit disintermediation. While many jurisdictions prohibit stablecoin issuers from paying interest, affiliated crypto platforms and service providers may offer yield-bearing products linked to stablecoins. These products could compete with bank deposits, raise funding costs for banks, and make deposit flows more volatile during periods of stress, limiting credit availability to the real economy.

Stablecoins also pose challenges to capital flow management and financial integrity. Their pseudonymous nature and ease of cross-border transfer make them susceptible to misuse for illicit activities, including money laundering and terrorism financing.

Since 2022, stablecoins have overtaken bitcoin as the primary vehicle for illicit crypto flows, heightening concerns for regulators, particularly in emerging markets with limited enforcement capacity.