A leading European digital asset executive has warned that even enormous holdings of US Treasury bills may not protect major stablecoin issuers Tether and Circle from a sudden liquidity crisis during periods of market panic. (CoinDesk)
The warning comes as regulators and institutional investors increasingly scrutinize the stability and reserve structures of dollar-backed cryptocurrencies such as USDT and USDC, which collectively process hundreds of billions of dollars in digital transactions across global crypto markets.
Stablecoin Reserves Under New Scrutiny
Speaking at the Digital Money Summit 2026 in London, Christoph Hock — head of tokenization and digital assets at Germany’s Union Investment — argued that stablecoins backed by mixed reserve assets cannot be considered fully stable cash equivalents. (CoinDesk)
Hock said large Treasury bill reserves alone would not guarantee immediate liquidity during a severe redemption wave because stablecoin issuers could still face rapid withdrawal pressure and forced asset liquidation. (CoinDesk)
According to Hock, stablecoins such as USDT and USDC behave “more like hedge funds” than traditional fiat-backed banking products due to reserve structures that may include non-cash assets such as bitcoin, gold, or other instruments. (CoinDesk)
The remarks reflect growing institutional concern about how stablecoins would perform during a sudden financial shock or widespread loss of investor confidence.
Previous De-Pegging Events Raise Concerns
Critics pointed to past incidents where stablecoins temporarily lost their one-to-one peg with the US dollar during periods of market turmoil.
USD Coin notably fell below its dollar peg during the 2023 regional banking crisis after reserves linked to Silicon Valley Bank became temporarily inaccessible. Market volatility triggered heavy redemption activity and investor panic before the peg later stabilized. (CoinDesk)
Hock warned that similar episodes could create severe mark-to-market losses for institutional investors, treasury managers, and corporations relying on stablecoins for short-term liquidity management. (CoinDesk)
Tether and Circle Hold Massive Treasury Reserves
Both Tether and Circle have significantly increased their holdings of short-term US Treasuries in recent years as regulators pushed stablecoin issuers toward safer reserve assets.
Tether says USDT is backed primarily by US Treasuries, cash equivalents, and other reserve assets, while Circle similarly maintains Treasury-heavy reserves for USDC. (CoinDesk)
Supporters argue that Treasury-backed reserves strengthen confidence and improve transparency compared with earlier periods when stablecoin issuers faced criticism over reserve disclosures. (Wikipedia)
However, some financial experts caution that even highly liquid government securities can become difficult to convert instantly during periods of market stress if redemption requests surge simultaneously.
Regulators Increasing Oversight
European and American regulators have intensified oversight of stablecoins amid concerns about systemic financial risks, reserve transparency, and connections between crypto markets and traditional banking systems. (CoinDesk)
The debate has become increasingly important as stablecoins expand beyond crypto trading into cross-border payments, decentralized finance, and institutional settlement systems.
Some policymakers argue stablecoins could strengthen global demand for the US dollar and Treasury securities. Others warn that rapid growth could introduce new vulnerabilities into financial markets if issuers face sudden redemption pressure. (Fortune)
Stablecoin Market Continues Expanding
Despite regulatory scrutiny, stablecoins remain one of the fastest-growing sectors of the cryptocurrency industry.
Tether remains the world’s largest stablecoin by market capitalization, while USD Coin continues serving as a major digital dollar token used by exchanges, payment platforms, and decentralized finance applications. (CoinDesk)
Industry analysts say future regulation, reserve transparency standards, and access to banking infrastructure will likely determine whether stablecoins evolve into mainstream financial instruments or remain vulnerable during periods of economic stress.
Sources
Editor: Sudhir Choudhary
Tags: Tether, Circle, Stablecoins, Cryptocurrency, USDT, USDC, Treasury Bills, Crypto Regulation, Digital Assets
News by The Vagabond News.
