En crypto: The world wants stablecoins. But can they stay stable?

Stablecoin, a cryptocurrency designed to maintain a stable value, typically by being pegged to an external asset like the US dollar, has been gaining traction steadily. It’s a global shift driven by the promise of faster payments, cheaper transfers, and a financial system that moves at internet speed. But alongside the excitement lies a critical question, how safe is a currency that stays stable, until it doesn’t?

It’s a global shift driven by the promise of faster payments, cheaper transfers, and a financial system that moves at internet speed. But alongside the excitement lies a critical question, how safe is a currency that stays stable, until it doesn’t?

Last month, the world’s first stablecoin pegged to the yen launched in Japan, a small but significant move in a country where many consumers still prefer to use traditional payment means like cash and credit cards.

Since August, China has been considering the usage of yuan-backed stablecoins for the first time to boost wider adoption of its currency globally, in what Reuters called a major reversal of its stance towards digital assets.

Recently, the Bank of England has been laying the groundwork for sterling-denominated stablecoins. Its newly proposed framework defines how systemic stablecoins should be backed, managed, and integrated into the UK’s payments landscape. The plan includes strict collateral rules, temporary holding limits, and a staged rollout designed to minimize risks to financial stability during the transition.

Stablecoins have been making an appearance in emerging markets as well. Last month, VC firm a16z led the funding for Pakistan-based ZAR to turn cash into stablecoins in emerging markets.

Unlike other volatile cryptocurrencies such as Bitcoin, stablecoins are more predictable and can be used for payments, trading, and cross-border transactions. They are often backed by reserves of the pegged asset or other financial instruments to maintain their value.  

But is it completely safe to adopt this cryptocurrency just because its stabler than others? It has its pros and cons.

Case in point, Frontier Stable Token.

In September, Wyoming became the first US state to launch its own stablecoin, the Frontier Stable Token (FRNT) across seven blockchains, including Ethereum and Solana. Each token is backed by dollars and short-term treasuries, with an extra 2% overcollateralization to strengthen reserves.

The move cements Wyoming’s pro-crypto stance. However, some are questioning that beyond signaling innovation, does FRNT have genuine utility?

“Payments without intermediaries sound slick, but safeguards matter” — Juniper Research

As Juniper Research says, “payments without intermediaries sound slick, but safeguards matter”. Although FRNT promises instant, low-cost transfers, the lack of middlemen could mean lack of fraud protection and refunds become tricky. US consumers already have PayPal, Venmo, and Zelle for fast, trusted payments, leaving FRNT to fight for relevance in an already crowded space.

The part that could resonate with locals is aunique public funding mechanism. Unlike other stablecoins, interest from FRNT reserves are scheduled to go into Wyoming’s School Foundation Fund. State citizens can find this attractive.

Another pro point is that government-to-citizen payouts make the strongest use case. In trials, FRNT’s prototype (WYST) reduced vendor payment times from 45 days to seconds. Applied to tax refunds, benefits and contracts, the token could make government processes more cost efficient. 

According to the IMF, stablecoin companies have racked up millions of users globally, transacting across borders 24/7 at very low cost. New legislation in the US and other countries may further boost their growth. Dollar-pegged stablecoins have become a financial lifeline for people in some economies with high inflation. 

Hélène Rey, a professor at the London Business School, weighs how the macroeconomics and geopolitics could play out in case of widespread adoption of US dollar-denominated stablecoins around the world. On the pro side we could enjoy faster and cheaper cross-border payments.

While it’s hard to forecast how the use of this technology will play out, it’s “likely to create major financial stability risks,” — Hélène Rey, a professor at the London Business School

But on the con side are many points. There is a risk of dollarization (where the dollar is used in parallel with the local currency), capital flows and exchange rate volatility, potential weakening of the banking system, money laundering and other financial crimes. While it’s hard to forecast how the use of this technology will play out, it’s “likely to create major financial stability risks,” Rey writes.

“The global financial landscape has changed, yet the rules remain largely unchanged,” points out Yao Zeng of the University of Pennsylvania Wharton School.

“Stablecoins may function well in good times, but they can falter under stress.” — Yao Zeng of the University of Pennsylvania Wharton School

Zeng says that putting stablecoins in the context of broader changes that we witness in the financial markets can give us a hesitant perspective. There is speed and ease of service from the likes of lightly regulated nonbanks, who are providing more liquidity, as well as lenders that use AI and big data to speed loan approvals, and reduce collateral requirements. These modern financial organizations reach borrowers traditional banks often overlook.

But what happens in irregular scenarios?

One thing is clear, he writes. “Stablecoins may function well in good times, but they can falter under stress.” 

And what happens when AI enters this fray? According to Galaxy Digital’s CEO, Michael Novogratz, AI bots will become the biggest users of stablecoins as the technologies merge.

“In the not so distant future the biggest user of stablecoins is going to be AI,” — Galaxy Digital’s CEO, Michael Novogratz

“In the not so distant future the biggest user of stablecoins is going to be AI,” the fintech founder said.

As the IMF puts it, “We must keep an open mind about stablecoins and financial innovation. Clearly, there is a lot of room for improvement in payment systems and financial markets in general. Users demand it. The key is to balance the risks and benefits through clear regulation that protects consumers and investors and limits spillovers. Who knows what new possibilities such innovations will unlock along the way?”

Banking and payment systems are in a state of revolution but stablecoins are only one facet of it. Innovation is in both public and private sectors. Governments and central banks are trying to maintain their systems while chiming in with disruptive innovation. Fintechs and big techs and new products like crypto and stablecoins, are upping the ante for the existing systems.

“We must keep an open mind about stablecoins and financial innovation. Clearly, there is a lot of room for improvement in payment systems and financial markets in general. Users demand it. The key is to balance the risks and benefits through clear regulation that protects consumers and investors and limits spillovers. Who knows what new possibilities such innovations will unlock along the way?” — IMF

Stablecoins sit at the crossroads of finance, technology, and geopolitics, promising a faster, cheaper, and more inclusive way to move money across borders. Yet, the very features that make them appealing also expose the financial system to new uncertainties. As governments experiment with state-backed tokens, emerging markets lean on dollar-pegged coins for stability, and AI edges closer to becoming a major participant in digital payments, the stakes are rising.

Whether stablecoins become a pillar of next-generation finance or a cautionary tale will depend on how well regulators, innovators, and markets navigate this transition. The world’s payment rails are being rewired in real time, and stablecoins are only one piece of a much larger transformation. What’s clear is that money is changing, and the choices made today will shape how it moves tomorrow.