Stablecoins pose "Hidden Risk" to global financial system, warns KTrade

October 24, 2025 (MLN): In a hard-hitting new report, KTrade Securities has warned that stablecoins, digital tokens pegged to fiat currencies, represent a systemic threat comparable to shadow banking before the 2008 financial crisis.

This is despite their rapid rise to dominance in cryptocurrency markets.

The report revealed that stablecoins now account for nearly 80% of cryptocurrency trading activity, with a combined market capitalization approaching $300 billion as of September 2025.

"Stablecoins carry vulnerabilities similar to shadow banking prior to the 2008 crisis," Faran Khan writes in the report.

Holders lack legal ownership of reserves, leaving them exposed in the event of issuer insolvency and raising the risk of destabilizing bank-run dynamics, he added. 

Unlike bank deposits with FDIC insurance or central bank support, stablecoin holders must rely entirely on the private issuer's integrity and solvency without government protection, the report emphasizes.

In a striking illustration of stablecoins' growing influence, Tether has become the 18th-largest holder of U.S. Treasuries globally, surpassing South Korea's holdings.

With total reserves of $162.6 billion backing its tokens, Tether holds $105.5 billion in U.S. Treasury Bills, representing nearly 65% of its total reserves.

The report identifies stablecoins as part of America's "strategic bet to defend the dollar," with the recent GENIUS Act providing regulatory clarity that mandates 100% reserve backing in safe, liquid assets while extending U.S. sanctions oversight to stablecoins.

This creates a new form of financial dependency for developing nations. Dollar-backed stablecoins reinforce global USD dominance and deepen financial dependence on the global reserve currency, potentially triggering capital flight and limiting domestic investments in emerging markets.

The Bank of England plans to introduce strict ownership limits on stablecoins, capping individuals at £10,000-£20,000 and businesses at £10 million, due to concerns that widespread use could weaken the UK banking system by draining deposits from traditional banks.

Governor Andrew Bailey has warned that unregulated stablecoins could become a "money launderer's dream," emphasizing the need for traditional banking-level safeguards.

The adoption of stablecoins in developing economies reduces confidence in domestic currencies and complicates monetary policy locally, while effectively increasing global dollar demand even outside formal U.S. banking systems.

The report cites historical crises, from the Latin American debt crisis of the 1970s to the Asian Financial Crisis of 1997-1998, as precedents for how dollar dominance can destabilize emerging markets.

KTrade's report recommends that nations launch their own sovereign stablecoins backed by productive assets like energy infrastructure to maintain monetary sovereignty and provide local investors with high-yield alternatives that bypass traditional banking systems.

"By channeling credit into high-impact projects and distributing yields directly to local investors, governments can bypass slow banking systems, lower energy costs, and stimulate the economy," Khan concludes.

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