BIS criticizes stablecoins as "not in line with monetary principles" and three major risks may cause the financial system to get out of control

The latest report of the Bank for International Settlements (BIS) stated that although stablecoins are widely used and growing rapidly, they cannot become "currency". It also pointed out that stablecoins not only lose "singleness, flexibility and integrity", but may also cause the financial system to get out of control. Therefore, the BIS actively calls on countries around the world to strengthen supervision and not allow stablecoins to develop without restraint.

Why Cryptocurrency Is Hard to Become “Real Money”

BIS pointed out that the birth of Bitcoin (BTC) and stablecoins came from a common goal, which is to create a "decentralized" monetary system. These "digital currencies" hope to use blockchain technology to replace traditional accounting and transaction methods, so that everyone can participate without having to trust specific institutions.

However, BIS emphasized that although this ideal seems beautiful, in actual operation, cryptocurrencies not only have large price fluctuations and poor efficiency, but also cannot truly play the role of "currency" and can only be used as speculative assets.

The issuer claims that it is pegged 1:1 to the US dollar, but the price often deviates

BIS went on to point out that stablecoins are like "fiat currency substitutes on the blockchain." Stablecoin issuers such as Tether and Circle also claim that their USDT and USDC are pegged to the US dollar at a 1:1 ratio, allowing users to have stable trading tools on the chain.

The BIS said that stablecoins are usually issued by a single company, and reserve assets are used to "endorse" whether the coins they issue are equal in value. However, the BIS found that even if these stablecoins claim to be "stable", in fact they often cannot achieve "1:1 exchange", and the exchange price in the market is constantly changing.

Three major failures of stablecoins: singleness, resilience, and integrity all failed

Single failure: different stablecoins cannot communicate with each other

BIS believes that stablecoins are more like a "claim" against a certain issuer. Different stablecoins cannot be interoperable, and there will be price differences in the market like ETFs. The buying and selling prices may not be exactly equal to 1 US dollar, which violates the currency characteristic of "circulation without asking the price", so it is difficult to achieve currency uniformity.

As can be seen from the two figures below, the market value of stablecoins has grown rapidly in recent years, and the market is highly concentrated in a few stablecoins such as USDT and USDC. Among them, although the volatility of stablecoins backed by fiat currencies is lower, there are still obvious price fluctuations, especially the volatility of algorithmic stablecoins is even higher than that of Bitcoin.

Failure of resilience: inability to cope with financial stress or unexpected events

BIS said that the central bank can provide liquidity according to market conditions, such as temporary loans, instant liquidation, etc. However, stablecoins cannot do this. Instead, they must "collect money before issuing coins", and are completely unable to expand their balance sheets to respond to large transactions or emergencies.

BIS cited the example of real-time gross settlement systems (RTGS) or corporate standby credit, which can provide financial assistance in times of crisis. However, stablecoins do not have this kind of flexibility and cannot support modern payment and settlement needs.

Failure of integrity: money laundering and fraud risks are rising

BIS said that the biggest risk of stablecoins is that they are "opaque and difficult to track" because many users use stablecoins through non-custodial wallets, without the need for identity verification (KYC) or going through financial institutions, allowing criminals to transfer funds secretly and evade detection.

Although transactions on the chain can be recorded, many people use "coin mixers" to confuse the flow of funds, making it difficult for the government to track them. Even if an exchange or issuer can freeze some addresses, it is almost impossible to monitor all of the billions of transactions each year.

Stablecoins may lead to "systemic risks" in financial markets and sovereign policies

In addition to the design problems of stablecoins themselves, BIS also pointed out that if stablecoins continue to expand, they will bring deeper systemic risks, such as threats to monetary sovereignty, financial market pressures and the risk linkage of the traditional banking system.

BIS also stated that more than 99% of stablecoins are currently denominated in US dollars. In many countries with high inflation, users prefer to use stablecoins as a means of transaction and storage, which indirectly weakens the effectiveness of the local central bank's monetary policy.

As shown in the figure below:

• Since 2020, the flow of cross-border stablecoins (USDT, USDC) has grown rapidly, with the total amount approaching US$400 billion in 2024, indicating its expanding role in international payments.
• The main factors leading to the increase in cross-border use of stablecoins are "rising inflation and increased awareness of stablecoins."

In order to maintain price stability, stablecoin issuers have invested a large amount of funds in short-term US Treasuries. Once the stablecoin market becomes larger and larger, it may squeeze the space of other investors, and even cause a large wave of redemptions under market pressure, triggering the risk of selling.

Finally, assuming that banks themselves also begin to issue stablecoins, but these stablecoins are circulated in the form of blockchain and are not included in the deposit insurance system, they may trigger rapid capital outflows under financial pressure, impacting banks' lending capacity and the real economy, and further deepening the fragility of the financial system.

As can be seen from the figure below,

• In 2024, stablecoin issuers have become one of the main buyers of short-term U.S. Treasuries, with purchases comparable to those of money market funds (MMFs), and their influence on the market has increased significantly.

• Stablecoins buying a large amount of short-term U.S. Treasury bonds will lower yields. When faced with monetary policy tightening (such as interest rate hikes), the price of stablecoins will react similarly to risky assets and show a significant decline.

The development of stablecoins must be strictly regulated

BIS emphasizes that stablecoins must be regulated in a "technologically neutral" manner, and cannot be left alone just because stablecoins are new technology. The following are BIS's specific regulatory recommendations:

• All wallets and exchanges must perform KYC and Anti-Money Laundering (AML) measures.

• Implement the “travel rule” for unhosted wallets.

• Stablecoins should hold highly liquid reserve assets such as short-term Treasury bills.

• Establish a regular audit and transparent disclosure system.

• It is prohibited to issue interest on stablecoins (to prevent arbitrage).

( From June 1, exchanges in Japan must comply with the "Travel Rule", and non-custodial wallets also need to be investigated )

Under the policy guidance of South Korean President Lee Jae-myung, the Korean won stablecoin is gradually emerging. Eight major banks including KB Kookmin Bank have successively applied for stablecoin trademarks and formed alliances to prepare to enter the crypto market. However, the Bank of Korea is relatively conservative, worried about capital outflows and financial stability, and actively promotes CBDC as a check and balance tool.

Korea's National Bank submits stablecoin trademark and joins forces with eight major banks to form an alliance

KB Kookmin Bank, South Korea's largest commercial bank, recently submitted 17 stablecoin-related trademark applications at one time, including token codes such as "KBKRW, KRWKB and KBST", covering virtual currency trading software and blockchain applications.

According to KB’s statement to local media Aju Economic News , this is an “advanced deployment” for the upcoming stablecoin alliance. The alliance members include seven major banks, including Shinhan, Woori, Nonghyup, IBK, Suhyup, Citi Korea and Standard Chartered Korea, four of which are the top four banks in South Korea in terms of market share.

Another local media Econovill pointed out that the eight major banks are preparing to set up a joint venture to issue a stablecoin based on the Korean won:

The alliance is working with South Korean blockchain initiative OBDIA and payment clearing agency KFTC, and is expected to be officially launched in late 2025 or early 2026.

This move echoes KakaoPay's simultaneous application, showing that a competition for Korean won stablecoins has quietly begun.

( South Korean communication software Kakao registered a stablecoin trademark! South Korean stock Kakao rose more than 30%, can Kaia catch up with the stablecoin craze? )

The central bank poured cold water: Stablecoins must be promoted prudently by banks

In contrast to the positive attitude of the banking industry, Ryoo Sangdai, deputy governor of the Bank of Korea (BOK), stated at a press conference today:

Stablecoins should be issued first by banks with the strictest supervision and then gradually expanded to other institutions. At the same time, a safety net should be established to avoid market turmoil and consumer losses.

Central Bank Governor Rhee Chang-yong also added that even though he did not oppose the concept of a Korean won stablecoin, he still had reservations about the foreign exchange management and cross-border capital flows involved.

Liu Xiangdai also questioned the necessity of issuing a Korean won stablecoin, and worried that a too-rapid implementation could lead to capital outflows, affect foreign exchange policies, and put pressure on the adjustment of the local financial system:

What non-US dollar stablecoins are currently widely used? The existence of US dollar stablecoins and their preference as safe-haven assets by various countries does not in itself constitute a reason to issue Korean won stablecoins.

Last week, the South Korean government just launched the draft of the "Digital Asset Basic Law", allowing companies with capital of more than 500 million won (about 368,000 US dollars) to issue stablecoins with a license.

(South Korea promotes the "Basic Law on Digital Assets": Stablecoin issuance must be licensed, and a supervisory committee directly under the president is planned to be established )

Do central banks prefer CBDCs to stablecoins?

Faced with the rise of private stablecoins, the Bank of Korea seems to be more interested in central bank digital currencies (CBDCs). Currently, the BOK is participating in Project Agora led by the Bank for International Settlements (BIS), and is promoting a test program called " Project Hangang " in the country, the first phase of which is expected to end at the end of June.

BOK said that whether the next phase of testing will be launched will depend on the progress of stablecoin-related legislation and will be coordinated with major banks. Central bank officials also revealed that they will strive to expand regulatory authority over non-bank institutions in the upcoming presidential policy planning committee to cope with the transformation of the financial industry.

South Korea’s stablecoin offensive and defensive battle has just begun

As private financial institutions work together to promote the development of stablecoins, South Korea continues to accelerate in the Asian digital currency competition. However, the central bank's cautious stance and potential regulatory obstacles add variables to this transformation. Whether South Korea can successfully build a local stablecoin ecosystem in the future remains to be seen in its actual progress in policy coordination and technology implementation.

Stablecoin issuer Circle is often regarded as the US representative in the field of cryptocurrency, but judging from the latest exposure of the investor structure, the company's capital background is far more complicated than imagined. According to the US Securities and Exchange Commission (SEC) and public market data, Circle has diversified shareholders from the United States, China, Hong Kong, Australia and other places, indicating that it is not a company controlled by a single country. This also provides new discussion space for the recent outside saying that "Circle is a representative of the United States."

Circle's investor structure revealed: Chinese, American, and Hong Kong investors jointly hold shares

According to documents and market data from 2025, Circle currently has at least 18 major shareholders, including venture capital giants, asset management institutions, individual founders and senior executives. Among them, American capital still occupies a dominant position, such as Fidelity, General Catalyst, ARK Invest, Accel Partners, etc., all of which are large financial and technology investment companies from the United States.

But what is more striking is that capital from China and Hong Kong also has a place, including:

• IDG-Accel China Capital GP II Associates Ltd.: A joint venture between China's IDG Capital and the United States' Accel, it has long focused on technology investments in China and Asia.

• Chuang Xi Capital Ltd: Registered in Hong Kong, active in China and Asia's technology circles, and recently significantly increased its stake in Circle.

Although these companies do not account for the majority, the size of their shareholdings and their share purchase behavior show that Chinese capital has substantial influence in Circle's structure.

Deconstructing Chinese capital background: Which ones count? Which ones are just past collaborations?

Although some investors have a history of cooperation with Chinese capital, it does not mean that their holdings have a Chinese background. For example:

• Jim Breyer (Breyer Capital): He established a joint venture fund with IDG Capital to enter the Chinese market, but Breyer himself is a representative of American capital.

• Accel Partners LP: An American venture capital firm that has established a joint venture fund with China's IDG in the past, but its current stake in Circle should be considered a global fund operation.

After a clear definition, there are currently only two companies with clear Chinese capital background: IDG-Accel China and Chuang Xi Capital.

Chinese capital intervention in 2018: the role of the fire brigade

Looking back at the development history of Circle, 2018 was indeed a year when Chinese capital actively intervened. At that time, Circle completed a financing of up to US$110 million , the highlights of which included:

• Bitmain Technologies : The world’s largest mining machine manufacturer at the time and the lead investor in this round of financing.

• China Renaissance : Invested in Circle through its New Economy Fund.

• Chinese financial institutions such as IDG Capital, Baidu, China Everbright Holdings, and CICC have also participated in the past few rounds of investment.

These investments not only provide funds for Circle, but also help it expand into the Asian market and supplement the capital needs for acquiring exchanges such as Poloniex.

Circle today: Still backed by China? Not necessarily

Although Circle once received Chinese capital support at a critical moment, the shareholder structure has changed significantly. According to the latest documents, Chinese-backed institutions currently account for only a minority, and overall control is still dominated by US and global venture capital institutions. This includes:

• FMR LLC (Fidelity) : A giant with global assets of US$5.8 trillion.

• ARK Invest, General Catalyst, Oak Investment Partners : American funds that have been deeply engaged in the fields of technology and finance for a long time.

• Accel Partners : A multinational venture capital firm with long-term investment in the global technology market.

In addition, many of Circle's current senior executives are also American citizens, including founder and CEO Jeremy Allaire, CFO Jeremy Fox-Geen and Chief Product Officer Nikhil Chandhok (former Google and Meta executive), indicating that its operations and decision-making focus is still concentrated in the United States.

The international Circle is more like a representative of global financial technology

The current Circle is actually more like a fintech company with international capital and global governance. Its stablecoin USDC has been used in more than 190 countries around the world and has obtained regulatory approval and cooperation from multiple government agencies, including the U.S. Treasury, the European Central Bank and the Monetary Authority of Singapore.

Therefore, it may be an oversimplification to simply view Circle as a "representative of the United States"; from the perspective of capital and operations, it is closer to the role of a "global financial infrastructure provider", especially in the application areas of blockchain and stablecoins.

Circle Investor List Overview