- The Financial Stability Board says stablecoins could face redemption crises even when their reserves are complete, because those reserves may sit in a different country from the people demanding their money.
- The market is around $300bn, with roughly 99% of it pegged to the US dollar. FSB chair Andrew Bailey says cross-border arrangements for handling a failure are still undeveloped.
- This is a warning about a hypothetical stress, not a finding of trouble at any named issuer. We worked from CryptoSlate’s write-up rather than the FSB report itself.
A stablecoin is supposed to be the boring part of crypto. One , one dollar, no drama. The world’s financial stability watchdog has just published a warning that the boring part has a failure mode nobody prices in: a coin can be backed to the last cent and still stop being worth a dollar.
What a reserve actually is
Start with the basic machine. A stablecoin issuer takes real dollars, puts them somewhere, and issues tokens that each represent a claim on one of those dollars. The pile of real money is the reserve.
What the reserve is made of varies. Short-dated US government debt, cash sitting in commercial bank accounts, overnight repurchase agreements, sometimes money market fund shares. Treasury bills are close to cash but they still have to be sold to somebody, and bank deposits are only as reachable as the bank holding them. That matters later.
Issuers publish attestations, where an accounting firm confirms the reserve existed and what it held on a given date. Attestation is a point-in-time check rather than a full audit, and it tells you nothing about how quickly those assets could be turned into dollars in a bad week.
Who can actually redeem, and who can’t
This is the part almost nobody explains, and it changes how you read every stablecoin story.
Redemption means handing tokens back to the issuer and receiving dollars by bank transfer. In practice that door is open to a small set of verified institutional clients: market makers, exchanges, large trading firms, usually with minimum sizes in the hundreds of thousands and a bank account the issuer will deal with.
If you hold a stablecoin on a UK exchange or in a wallet on your phone, you are almost certainly not one of them. You cannot redeem. What you can do is sell on the secondary market, to whoever is buying, at whatever price is on the screen.
So the dollar peg you rely on is not a promise made to you. It is held up by arbitrage: when the price slips to 97 cents, firms with redemption access buy cheap tokens, redeem them at a dollar, and pocket the difference. That buying pressure drags the price back up. The peg is a by-product of other people’s profit motive, and it holds only as long as those firms can both buy the tokens and get their dollars out promptly.
Where the FSB says this gets dangerous
According to the CryptoSlate report, the FSB’s 12 October paper focuses on stablecoins issued through several affiliated companies in different countries, all sharing liability for the same token while each holds its own separate reserves. A holder can redeem through any participating issuer, wherever the underlying assets happen to sit.
Picture the problem that creates. Redemption demand concentrates in one jurisdiction, perhaps because that is where the panic started or where a local regulator moved first. The reserves backing those tokens are substantially held by an affiliate somewhere else. Moving money across borders in the middle of a stress event means correspondent banks, settlement windows, possibly a local court or supervisor with views of its own about whether assets should be allowed to leave while a crisis is running.
Nothing in that chain requires anybody to have stolen anything. The reserve is whole the entire time. It is simply in the wrong place, and the time it takes to arrive is the time during which the peg does not hold.
FSB chair Andrew Bailey, who also runs the Bank of England, said international coordination on this remains underdeveloped and authorities lack mature arrangements for handling a cross-border stablecoin failure. The report landed days before the 15 October meeting of G20 finance ministers and central bank governors, which is the audience it was written for.
It has already happened once
In March 2023, Silicon Valley Bank failed. Circle, the issuer of USDC, had about $3.3bn of its reserve sitting in deposits at that bank. The rest of the backing, tens of billions, was unaffected.
USDC traded as low as roughly 87 cents over that weekend. The money was not gone. US authorities guaranteed the deposits within days and the peg recovered. But for two days, anyone who needed to convert USDC to pounds or dollars was taking a real loss, because redemption was paused and the only exit was selling to whoever was still bidding.
That is the FSB’s scenario in miniature. Backing intact, one slice of it temporarily unreachable, weekend banking hours, and a price that broke anyway. The FSB is pointing out that a multi-country issuance structure manufactures the same trap without needing a bank to fail at all.
What a UK holder can check
Three things, and none of them require any special access.
Which legal entity issues the token you hold. Big stablecoins are often issued by different companies for different regions, and they are not interchangeable in a crisis even though the token looks identical in your wallet. The issuer’s own site states this, usually in the terms of service rather than the marketing pages.
Where that entity is regulated, and what that regime actually promises. The EU’s MiCA rules and the UK’s developing regime impose reserve and redemption requirements that an offshore issuer simply is not subject to. We covered the practical side of that split in our piece on stablecoins that fall outside MiCA, and the short version is that the label on the coin tells you less than the jurisdiction behind it.
Whether your exchange is your only route out. If every pound you hold runs through one platform, that platform’s decision to halt conversions is your decision too. Our guide to withdrawals covers what tends to happen to exits during stress, and our self-custody guide covers the trade-offs of holding tokens yourself, which removes platform risk without touching issuer risk at all.
What to watch
Whether the G20 meeting produces anything binding. The FSB writes recommendations; it cannot compel a national regulator to do anything, and the gap Bailey described is precisely a gap between national authorities. Recommendations that nobody implements leave the risk exactly where it was.
Whether major issuers start disclosing reserves broken down by issuing entity and jurisdiction rather than as one global total. That single change would let anyone see whether the structure the FSB is worried about applies to the coin in their wallet.
And next time a stablecoin story crosses your feed, notice which question it is answering. “Are the reserves there” and “could you get your money on a bad Saturday” are not the same question, and the FSB has just spent a report on the second one.