BIS Warns of Stablecoin Dollarization Risk, AI Bust

In a special chapter pre-released on 23 Jun as part of its Annual Economic Report published 28 Jun, the BIS put stablecoin market capitalization at $320bn as of end-May, equivalent to 1.5% of US commercial bank deposits. Annual transaction volume reached an estimated $28tn in 2025, less than three business weeks of settlement at the largest US wholesale payment systems.

Despite the modest scale, the BIS cautioned that widespread adoption could reshape capital flows and challenge monetary sovereignty in economies with weaker fundamentals, a risk it labelled 'stablecoin dollarization'. Capital controls have proved largely ineffective, with BIS financial stability head Gaston Gelos telling reporters enforcement was "quite difficult given the nature of the technology."

Dollar pegs account for 99.4% of fiat-backed stablecoin market capitalization. BIS data charts included USD1, a dollar-pegged stablecoin issued by BitGo and sponsored by World Liberty Financial, the Trump family's crypto company, alongside Tether's USDT and Circle's USDC.

Regulatory frameworks diverge

The report drew a line between money-like stablecoins, requiring par redeemability backed by ultra-safe assets with central bank liquidity access, and investment-like instruments resembling exchange-traded funds, with redemption gates and deviations from par permitted. 

Of six jurisdictions surveyed, only the UK proposed granting systemic issuers a Bank of England deposit account, with lender-of-last-resort access under consideration.

Yields defy policy rates

Stablecoin yields in decentralized finance lending pools have remained largely disconnected from traditional interest rates, the BIS found, driven mainly by protocol design and total value locked. Frank Smets, acting head of the BIS monetary and economic department, told reporters the yields "are mostly correlated with events happening in the crypto world." 

The BIS cited Project Agorá, involving eight central banks and over 40 institutions, as its preferred alternative: a tokenized settlement platform anchored in central bank reserves rather than private issuers, preserving the monetary guarantees stablecoins cannot provide.

AI bust risk cited

The stablecoin chapter sat within a wider report identifying four pressure points: inflation from the Strait of Hormuz closure, the AI investment boom's durability, financial fragilities tied to elevated valuations and opaque funding structures, plus record sovereign debt levels. 

Multi-year purchase commitments linking chipmakers, hyperscalers and AI labs risked undisclosed leverage, the BIS said. A correction could prove "similarly disruptive" to credit markets as the 2008 global financial crisis.

"Policymakers must act now," BIS General Manager Pablo Hernández de Cos said. "Delay will only make the necessary adjustments more costly."