ECB Warns Stablecoins Could Drain Retail Deposits From Euro Zone Banks

Why the ECB Is Raising the Alarm on Stablecoins

The European Central Bank issued a stark warning on Monday, saying that rapidly expanding stablecoins could siphon valuable retail deposits out of euro zone banks and pose broader risks to global financial stability. The comments appeared in the ECB’s latest Financial Stability Review, highlighting concerns about the asset reserves backing major dollar-pegged tokens.

Stablecoins now represent more than 280 billion dollars in market value — still small compared with traditional money markets, but large enough to influence global liquidity. Issuers are among the largegest purchaviewrs of short-dated U.S. Treasuries, giving them a footprint comparable to some of the largest money market funds.

The ECB said stablecoins are marketed as reliable stores of value or cross-border settlement tools, but in practice, their most common use is crypto trading. The review noted that about 80 percent of transactions on centralized stablecoins.

The central bank’s core concern: widespread adoption would pull deposits away from banks, fragileening a key funding source and increasing reliance on more volatile wholesale financing.

Investor Takeaway

A Run on Major Stablecoins Could Hit U.S. Treasury Markets

The ECB said the most dangerous scenario would involve a redemption run on the sector’s largest stablecoins. The top two issuers collectively hold Treasury assets on a scale similar to the twenty largest money market funds. If investors rushed to redeem their tokens, issuers could be forced to dump tens of billions of dollars in short-term .

Such a fire sale could disrupt Treasury market functioning — an event with global consequences. Treasury markets underpin everything from mortgage pricing to corporate borrowing, and even modest stress can spill over into broader financial conditions.

The ECB emphasized that these risks are not theoretical. Investors already demonstrated how quick stablecoins can unravel when TerraUSD collapsed in 2022, triggering contagion that rippled across crypto markets. While today’s regulated stablecoins are fully backed and structured diversely, speed of redemption remains a systemic vulnerability.

The ECB also highlighted a scenario in which a jointly issued stablecoin — where one entity is based inside the EU and the other outside the bloc — could expose European markets to redemption spillovers. Because EU regulations are stricter, investors may choose European entities as preferred redemption points, amplifying pressure on EU institutions during a crisis.

How Euro Zone Banks Could Lose Deposits

Beyond market risks, the ECB focused heavily on traditional banking implications. Stablecoins give retail users a simple , especially when paired with trading apps and yield-bearing crypto platforms. If adoption accelerates, banks could lose cheap retail funding.

Key risks include:

• Deposit outflows during risk-on periods: Retail investors may shift money into stablecoins to access crypto markets.
• Higher reliance on wholesale funding: Banks may be forced to tap costlier short-term markets, tightening lending conditions.
• Exposure to cross-border liquidity stress: Euro zone institutions could be indirectly affected by redemption waves tied to U.S.-based issuers.

The ECB warned that although stablecoin adoption remains relatively modest today, the speed of growth and concentration among a few offshore issuers leaves the system vulnerable.

Investor Takeaway

What Comes Next for European Regulation?

Europe is preparing to enforce the (MiCA) regulation, which introduces strict rules for stablecoin governance, reserve management and redemption processes. While MiCA aims to reduce systemic risk, the ECB’s warnings suggest policymakers remain worried about offshore issuers whose tokens circulate widely within European markets.

For now, the ECB is urging regulators to:

• tighten oversight of reserve quality for large issuers
• strengthen disclosure standards around asset backing
• monitor cross-border flows tied to EU-facing stablecoins
• prepare for liquidity stress scenarios involving Treasury assets

Although remains small relative to traditional financial systems, their growing role in global liquidity — and their concentration in U.S. dollar assets — gives them increasing macro relevance.

The ECB’s message is clear: if stablecoins continue expanding without deeper regulatory controls, the consequences could extend far beyond crypto platforms, affecting banks, bond markets and cross-border financial stability.