DFC

Visa reports that crypto-linked card use on its network has rebounded since the 2022 “crypto winter,” with payment volumes recovering toward prior highs and becoming more geographically diverse, now led by Asia Pacific rather than being concentrated in Europe and North America. These cards let consumers spend cryptocurrencies or stablecoins anywhere Visa is accepted, with instant conversion to local fiat at the point of sale so merchants receive standard Visa payments and need not change their acceptance or settlement arrangements. Volumes surged roughly elevenfold between January 2021 and April 2022 alongside a sharp rise in Bitcoin’s price and a fivefold increase in stablecoin supply, then flattened after the Terra Luna collapse before resuming steady growth from 2024 in line with expanding stablecoin issuance. [Visa]

The CD Howe Institute published an article in which Peter MacKenzie and Mark Zelmer argue that Canada must rapidly operationalize its Stablecoin Act and consider a central bank digital currency (CBDC) to avoid ceding payment-system sovereignty to U.S. dollar-linked stablecoins enabled by the GENIUS Act. They note that GENIUS-backed U.S. stablecoins and foreign exchanges could become core Canadian payment rails, undermining monetary sovereignty, domestic oversight, and data access, while Canada’s high-level Stablecoin Act leaves key issues on reserves, operations, and foreign platforms unresolved. The authors propose a function-based, two-track regime that treats pure payment stablecoins as fully backed payment instruments under Bank of Canada oversight and keeps tokenized deposits in the banking framework, complemented by Bank of Canada liquidity lines and a CBDC settlement layer to preserve singleness of money and cross-platform interoperability. They stress that the open question is whether Canada will implement detailed, “comparable” rules fast enough to shape international arrangements rather than import foreign standards. [CD Howe Institute]

OMFIF published an article in which Ousmène Mandeng pitches tokenized money market fund (MMF) shares as an alternative tokenized settlement asset. They offer bankruptcy‑remote, interest‑bearing claims on sovereign or high‑quality assets rather than bank balance sheets. By enabling instant delivery‑versus‑delivery transfer and collateralization without title transfer, tokenized MMFs could shift institutional liquidity management from episodic subscription/redemption to continuous circulation, potentially easing run dynamics and unlocking high‑quality collateral for intraday liquidity and cross‑border settlement. Constant net asset value MMFs invested in government securities could function as par settlement instruments with favorable prudential treatment, positioning them as strong competitors to tokenized deposits and stablecoins in wholesale use cases. Key uncertainties concern the robustness of distributed ledger technology, the status of the on‑chain versus off‑chain legal register and the prudential and regulatory classification of these instruments, which will determine their scalability and systemic role. [OMFIF]

Delphi Digital argues that dollar stablecoins are rapidly gaining share in FX, especially in long‑tail emerging market corridors where legacy correspondent banking makes cross‑border payments slow and expensive, with most costs driven by infrastructure rather than FX risk. In corridors like Argentina or Nigeria, fees and spreads are largely compensation for pre‑funded nostro/vostro accounts, delayed settlement, credit risk, and multiple intermediaries, so stablecoin rails that offer atomic, near‑instant settlement in tokenized dollars can undercut banks and keep corridors viable. The piece highlights that new infrastructures show how on‑chain FX could settle in seconds instead of days. However, it stresses that fiat on/off‑ramps remain the main bottleneck, since bank wires still run on legacy batch rails and regulatory frictions, implying that stablecoins will not displace major FX pairs soon but are already rebuilding broken payment rails in under‑served corridors. [Delphi Digital]

G+D's Lars Hupel posted an article on LinkedIn that argues that the “stablecoin sandwich” model for cross‑border payments—converting local currency to a (mostly USD) stablecoin, sending it on‑chain, then converting back—largely replicates traditional correspondent banking rather than solving its hardest problems, because liquidity is concentrated in a few USD‑denominated stablecoins and most currencies lack deep stablecoin markets, so efficiency gains are modest and partly driven by regulatory arbitrage rather than technology; meanwhile, central banks are pursuing more promising alternatives like interlinking instant payment systems, broadening access to real-time gross settlement systems (RTGSs) to non‑banks, and building multilateral central bank digital currency (CBDC) platforms such as mBridge and Project Agorá, which more directly tackle fragmentation and access in cross‑border payments. [LinkedIn]

This FT article critiques stablecoins’ ability to function as “single” money because issuance across multiple permissionless blockchains makes nominally identical tokens non‑fungible, fragments liquidity, and forces risky, costly bridging for interoperability. It argues that validator compensation via congestion rents and gas‑fee auctions means users internalise scaling costs, so network effects that underpin efficient payment instruments are weakened and stablecoins resemble a set of siloed instruments rather than a unified monetary asset. The piece suggests this undercuts claims that distributed consensus can substitute for a central bank’s common ledger, and raises a policy question: as stablecoin issuers obtain direct access to central bank payment rails, should regulators treat these liabilities as peripheral crypto instruments or integrate them into a consolidated, tightly supervised monetary framework?

The BIS published a Hyun Song Shin paper that develops a global-games model of distributed technology technology (DLT) network validator coordination to show that higher decentralization requires disproportionately higher validator rents funded by user fees. This implies that capacity must be endogenously constrained and congestion is structurally necessary rather than incidental. This tokenomic structure induces entry of lower-security, lower-fee chains that attract users priced out of incumbent ledgers, generating persistent fragmentation across base layers and layer‑2s and eroding the network effects that normally drive convergence on a single medium of exchange. As a result, for example, nominally identical stablecoins on different chains are non‑fungible, bridged rather than natively interoperable, so liquidity and acceptance remain chain‑specific despite common issuers and regulatory regimes. The paper argues that a central‑bank‑anchored trust and settlement layer is required to deliver monetary integration, rather than relying on fully decentralized consensus. [BIS]

Tord Coucheron posted a paper that argues that stablecoin growth reflects a structural response to cross‑border payment frictions in correspondent banking, not a fundamental demand for new private money. It shows that liquidity fragmentation, prefunding costs, and opaque, sequential settlement make traditional cross‑border transfers slow and capital‑intensive, making privately issued tokenized settlement claims economically attractive despite reserve and governance risks. It then introduces a real‑time multi‑currency financial market infrastructure (FMI) in central bank money, where banks hold multiple currencies and settle via payment‑versus‑payment (PvP), driving settlement costs toward zero and preserving the deposit‑funded banking model, monetary policy transmission, and monetary sovereignty. [LinkedIn]

The IMF published a paper that constructs narrative, high-frequency measures of “stablecoin shocks” based on USDT/USDC market-cap changes around stablecoin-specific news to identify their causal effects on U.S. financial markets. A 1 percent stablecoin demand shock persistently lowers short-term Treasury yields (about 1.9 bps at the 1‑month tenor), with limited effects on longer maturities. The broad dollar index modestly depreciates and crypto prices rise, with a small, economically minor increase in the S&P 500. Equity effects are heterogeneous: payment providers and crypto platforms benefiting from stablecoin infrastructure see gains, while large and community banks and major retailers show no significant response, implying markets do not yet price material disintermediation risk. Results are robust across identification strategies, event definitions, and econometric specifications. [IMF]

The Financial Action Task Force (FATF) published a report that concludes that stablecoins, now a major share of on‑chain and illicit virtual‑asset activity, create elevated money laundering/ terrorist financing/ proliferation financing (ML/TF/PF) risks, especially via P2P transfers through unhosted wallets outside direct anti-money laundering/ countering the financing of terrorism/ counter proliferation financing (AML/CFT) controls. FATF affirms that stablecoins are virtual assets and that issuers, intermediaries and relevant DeFi actors must be regulated as virtual asset service providers (VASPs) or financial institutions under Recommendation 15, with licensing, supervision, Travel Rule compliance and sanctions screening. Jurisdictions are encouraged to build stablecoin‑specific regimes, require issuers to embed technical controls (freeze, burn, allow/deny‑lists) and strengthen cross‑border supervisory cooperation and data collection on P2P use. The report stresses expanded use of blockchain analytics, targeted controls on transfers to unhosted wallets, structured public‑private partnerships, and detailed red‑flag indicators to guide monitoring and investigations. [FATF]

The European Central Bank (ECB) published a paper on rising stablecoin adoption's impact on monetary policy by reshaping banks’ funding structures and, in turn, the strength and composition of transmission channels. As stablecoins alter banks’ liability mix towards wholesale funding, the traditional bank lending channel is strengthened (through tighter funding constraints) but the deposit channel is weakened (by changing how deposit rates and quantities react to policy rates), thereby undermining the predictability of the overall pass‑through from policy rates to financial conditions. If foreign‑currency (especially USD‑pegged) stablecoins became widely used in the euro area, they would increase banks’ reliance on foreign‑currency wholesale funding and “import” foreign monetary and risk conditions into domestic liquidity and spending, eroding monetary sovereignty and making it harder for the central bank to stabilize inflation and output, particularly in stress episodes. [ECB]

The Bank of Korea has reportedly submitted a report to South Korea’s National Assembly Strategy and Finance Committee that urged that only licensed commercial banks be allowed to issue won-denominated stablecoins at the outset, citing money‑laundering, financial stability, and FX‑regulation circumvention risks. The Bank of Korea suggests non‑bank issuers could be considered later once their risk‑absorbing capacity is assessed. South Korean lawmakers are currently debating the next phase of digital-asset legislation, which includes provisions on stablecoins. [EToday]

The New York Federal Reserve Bank (FRBNY) published a paper that develops a theory and provides empirical evidence that payment stablecoins disintermediate banks not only by drawing deposits away from traditional institutions but also by transmitting significant liquidity stress to the banks that service stablecoin issuers. Using matched data between on‑chain issuance/redemption activity of a large U.S. dollar stablecoin and Fedwire interbank payments, the authors identify “partner banks” that hold stablecoin deposits and process flows for the issuer. They show that after new partnerships form following the 2023 crypto‑bank failures, these banks experience large, persistent increases in interbank payment volume (about 67%) and in intraday reserve balance volatility tightly linked to daily primary market stablecoin activity, implying that stablecoin-related payments act as frequent liquidity shocks. To manage these shocks, partner banks operate “narrowly,” holding substantially higher reserve balances—roughly 1.5 billion dollars more on average and a much larger reserves‑to‑assets ratio—while their loan share of assets falls by about 14 percentage points relative to similar banks, indicating a crowding‑out of lending capacity. The authors argue that this liquidity channel of disintermediation broadens the ways stablecoins can weaken bank deposit franchises, concentrate reserves in a few institutions, complicate the central bank’s task of gauging system‑wide reserve demand, and potentially propagate or amplify run dynamics from stablecoins to banks during stress events. [FRBNY]

The Bank of England (BOE) published an analytical framework for studying the singleness of money. It's based on a three-period banking model where banks choose both the unit of account of their debt and whether it can be used as a medium of exchange. The framework suggests that small deviations from singleness may still be consistent with the efficient allocation, consistent with the fact that small deviations from par already arise today (for example, ATM withdrawal fees). However, inefficient equilibria are more likely to occur if the newly introduced forms of digital money are issued by private entities with distinct business models from incumbent financial institutions. The model also highlights the stabilizing roles of both cash and central bank reserves in promoting the singleness of money. Reserves ensure issuers share a consistent asset base, while cash provides a backstop by enabling interoperability through central bank money. [BOE]

The UK Financial Conduct Authority (FCA) has selected four firms—Monee Financial Technologies, ReStabilise, Revolut and VVTX—from 20 applicants to test stablecoin services in its Regulatory Sandbox, focusing mainly on issuance and use cases including payments, wholesale settlement and crypto trading, so that these products can be trialled in real-world conditions with safeguards while FCA specialists provide feedback and refine proposed rules to ensure stablecoins can be trusted for payments, settlement and trading, inform the UK’s final stablecoin regime due later in 2026, and align with the broader crypto regulatory roadmap and related initiatives such as the Digital Securities Sandbox and the new cryptoasset authorisation regime starting from 2026 with full implementation by October 2027. [UK FCA]

PwC published the 2026 edition of its Global Crypto Regulation Report 2026 that explores the rapidly evolving regulatory landscape for digital assets, with a particular focus this year on stablecoins – their issuance models, reserve and redemption requirements, and supervisory frameworks – alongside key policy shifts and emerging trends in over 50 jurisdictions. This latest edition examines how policymakers are refining approaches to mitigate risks while enabling responsible innovation across the digital asset ecosystem. [PwC]

Russia's TASS news agency reported that the Bank of Russia plans to conduct a study in 2026 on the feasibility of creating a Russian stablecoin. First Deputy Chairman of the Bank of Russia Vladimir Chistyukhin said "we have plans to conduct a study this year where we will once again assess this situation. Indeed, our traditional position is that this is not allowed, but taking into account the practice of a number of foreign countries, we will once again look at what risks and prospects there are here and bring this up for public discussion". [TASS]

Bank Negara Malaysia (BNM) announced that its Digital Asset Innovation Hub (DAIH) has onboarded three initiatives in 2026 to test real-world applications of ringgit stablecoins and tokenized deposits, focusing on wholesale payment use cases for domestic and cross-border transactions, including tokenized asset settlement. These initiatives will be conducted in a controlled environment with ecosystem partners, including corporate clients and other regulators, with some exploring Shariah-related considerations. The testing aims to assess monetary and financial stability implications, with BNM planning to provide clearer policy direction on ringgit stablecoins and tokenized deposits by end-2026, potentially integrating with existing wholesale central bank digital currency (CBDC) work. [BNM]

ArXiv published a paper that systematically compares stablecoin-based payments with traditional card networks as retail payment systems. The authors introduce the CLEAR framework (Cost, Legality, Experience, Architecture, and Reach) to evaluate both systems across five dimensions. Their analysis reveals that while stablecoins offer advantages like continuous settlement, lower rail-level fees, and programmability, they suffer from significant drawbacks including weaker consumer protection (no native chargebacks), higher user-facing complexity (gas fees, wallet management), fragmented interoperability across blockchains, and limited merchant acceptance. Card networks, by contrast, subsidize consumers through interchange fees, provide strong legal recourse mechanisms, and benefit from standardized global infrastructure and network effects. The paper concludes that stablecoins demonstrate conditional advantages in closed-loop environments, cross-border corridors, and high-friction payment contexts (particularly in high-inflation economies), but remain structurally disadvantaged as general-purpose retail payment instruments compared to card networks due to their institutional incompleteness and lack of coordinated governance frameworks.

The MIT Digital Currency Initiative (MIT DCI) published a paper evaluates the financial, technological, and regulatory risks facing U.S. dollar stablecoins under the 2025 GENIUS Act. The authors argue that while the Act strengthens reserve asset quality and transparency, it treats stablecoin stability primarily as a balance-sheet problem, leaving critical vulnerabilities unaddressed. Maintaining par-value redemption depends not only on high-quality backing assets but also on the functioning of Treasury and repo markets, broker-dealer balance-sheet capacity, and blockchain operational reliability. The paper identifies three interconnected risk layers: financial risks (including Treasury market fragility and dealer intermediation bottlenecks), technological risks (smart contract bugs, consensus attacks, bridge failures), and regulatory gaps (undefined redemption mechanics, lack of capital requirements, no access to Federal Reserve liquidity facilities). The analysis reveals that even conservatively backed stablecoins could face stress from redemption surges or market disruptions, and that stablecoin issuers have significantly lower capital buffers than commercial banks. The authors conclude that durable stability requires an integrated approach spanning financial-market infrastructure, prudential regulation, and software governance, while highlighting a key policy dilemma: granting stablecoin issuers Fed access could reduce liquidity risk but might disintermediate banks and affect monetary policy transmission. [Source: MIT DCI]

The BIS's Hyun Song Shin examines money's role as a coordination device by drawing parallels between historical systems (like the Bank of Amsterdam's bills of exchange) and modern decentralized cryptocurrencies. The core argument is that decentralized consensus mechanisms face a fundamental tradeoff: achieving true decentralization requires validators to earn sufficient rents to maintain infrastructure, but this necessitates congestion and high transaction fees, which undermines money's essential network effects. As a result, the cryptocurrency ecosystem has become increasingly fragmented across multiple Layer 1 and Layer 2 blockchains (Ethereum, Tron, Solana, etc.), with stablecoins now circulating across non-interoperable networks that require bridges or centralized exchanges. Shin concludes that this fragmentation contradicts money's coordination function, raising critical questions for central banks about how to maintain monetary system coherence while interacting with these fragmented stablecoin infrastructures. [Source: BIS]

Forbes published an article by Vipin Bharathan that examines critical flaws in the GENIUS Act's stablecoin regulations, particularly regarding credit protection for holders if an issuer becomes insolvent. While the Act claims stablecoin holders would be first in line during bankruptcy with a 14-day payout, legal analysis by Adam Levitin reveals they actually rank fifth as unsecured creditors, behind four types of secured creditors including repo lenders, DIP (Debtor in Possession) lenders, bankruptcy professionals, and set-off claims. The article warns that stablecoins lack FDIC insurance protections that saved bank depositors during crises like SVB's collapse, making them vulnerable during runs when redemptions could trigger a downward spiral in treasury reserve values. As stablecoin issuance grows, their potential failure could threaten financial infrastructure, possibly forcing government intervention despite their private nature—creating a scenario where profits remain private but losses become public, while contradictions in the poorly-drafted legislation will likely be resolved through lengthy bankruptcy litigation rather than the promised rapid payouts. [Source: Forbes]

[January 29, 2026] Universal Digital Intl Limited become the first Foreign Payment Token Issuer registered by the Central Bank of the United Arab Emirates (UAE), alongside the launch of USDU, the first USD-backed stablecoin to be registered as a Foreign Payment Token under the UAE’s Payment Token Services Regulation. This makes USDU the only compliant USD settlement option for digital assets in the UAE market. The stablecoin is backed 1:1 by reserves held in safeguarded accounts at Emirates NBD and Mashreq, with Mbank providing corporate banking support, and features monthly independent attestation by a global accounting firm. Universal, regulated by Abu Dhabi Global Market's Financial Services Regulatory Authority, is partnering with AECoin, the first licensed UAE Dirham (AED) stablecoin in the UAE, for future AED conversions and with Aquanow for broader institutional distribution, positioning USDU as a bridge between traditional financial systems and the emerging digital asset economy both domestically and internationally. [Source: Universal Digital]

The Bank of England is leading a major overhaul of the UK's retail payments infrastructure through a new public-private partnership. Deputy Governor Sarah Breeden outlined three key goals: enabling direct account-to-account payments at retailers (bypassing card networks to reduce merchant costs averaging 0.6% per transaction), supporting seamless exchange between traditional bank deposits, tokenized deposits, and regulated stablecoins in a "multi-money" system, and improving cross-border payment speed and cost. The new Retail Payments Infrastructure Board, chaired by the Bank and including industry representatives, will consult on the design in Spring 2026, while a separate industry-led Delivery Company will build the infrastructure. To bridge the gap until the new system is ready, the Bank is encouraging interim private sector innovation through technology labs and a proportionate regulatory approach, aiming to modernize the UK's payment system to match advances seen in countries like India (UPI), Brazil (Pix), and Sweden (Swish).

Tether launched USA₮, a U.S. dollar-backed stablecoin specifically designed for the U.S. market under the GENIUS Act framework. Issued by Anchorage Digital Bank (America's first federally regulated stablecoin issuer), USA₮ aims to provide institutions with a compliant digital dollar alternative while Tether's global USD₮ continues operating worldwide. The stablecoin features Cantor Fitzgerald as reserve custodian, bank-grade compliance infrastructure, and is initially available on major exchanges including Bybit, Crypto.com, Kraken, OKX, and Moonpay. This launch represents Tether's effort to strengthen U.S. dollar dominance in the digital economy while meeting American regulatory standards. The press release notes that Tether is the 17th-largest holder of U.S. Treasuries globally, ahead of sovereign holders including Germany, South Korea, and Australia. [Source: Tether]

A paper posted on SSRN co-authored by the University of Toronto's Redouane Elkamhi argues that fiat-backed stablecoins function as "Eurodollars 2.0"—a new generation of offshore dollar liabilities that operate outside traditional banking regulation but remain economically linked to U.S. financial markets through reserve holdings and redemption mechanisms. Like the historical eurodollar system, stablecoins expand dollar liquidity creation and circulation beyond domestic borders, potentially strengthening dollar dominance by embedding the dollar as the default settlement asset in tokenized finance and accelerating digital dollarization in economies with weak currencies. However, this creates similar fragilities: stablecoins can experience rapid redemption runs that force reserve liquidations and transmit stress to money markets, while their global accessibility may erode monetary sovereignty in other jurisdictions. The authors propose the "Stablecoin Eurodollar System" framework to analyze how stress propagates through on-chain payment layers, off-chain reserve portfolios, and wholesale funding markets, emphasizing that the key policy challenge is not whether stablecoins exist but how convertibility into state money is governed when usage becomes systemic—particularly regarding reserve requirements, transparency standards, and whether public sector liquidity backstops should be extended to this new class of dollar instruments. [Source: SSRN]

Bloomberg published an article that argues that stablecoins pose minimal threat to traditional banking. While banks worry that interest-bearing stablecoins will drain deposits and increase their funding costs, the article contends that historical evidence suggests stablecoins and bank deposits serve complementary rather than competing functions—similar to how bank notes and deposits coexisted during the National Banking Era. The authors note that 70-80% of bank deposits are insensitive to interest rates, with customers valuing bundled services like physical branches over higher yields, making mass migration to stablecoins unlikely. They conclude that stablecoins, backed strictly by cash and short-term Treasuries under the GENIUS Act, enhance financial stability rather than threaten it, while providing additional demand for government debt. [Source: Bloomberg]

McKinsey Financial Services published analysis reveals that while stablecoins show headline transaction volumes of up to $35 trillion annually, the actual payment activity is only about $390 billion—representing roughly 0.02% of global payments. Most reported stablecoin transactions consist of trading, internal fund shuffling, and automated blockchain activity rather than real-world payments like supplier payments or remittances. The research, conducted with Artemis Analytics, found that B2B payments dominate actual stablecoin usage at $226 billion (60% of total), with Asia-originated activity leading at $245 billion. While stablecoin supply has grown from under $30 billion in 2020 to over $300 billion today, with projections reaching $2-4 trillion by 2030, the analysis emphasizes that financial institutions need to critically evaluate raw blockchain data and invest strategically in proven use cases rather than relying on inflated volume figures to assess stablecoins' current market position and potential. [Source: McKinsey]

The IMF published a paper that examines the financial stability risks posed by systemically important fiat-backed stablecoins and explores regulatory design choices to mitigate them. The authors argue that if stablecoins scale to systemic size, they could create dangerous feedback loops: redemptions would force bond sales, depressing market prices and yields, which would erode the issuer's solvency and trigger further redemptions—amplifying stress across financial markets. Through both conceptual analysis and a simulation model, the paper demonstrates that capital requirements (maintaining asset-liability ratios above 100%) and cash reserve requirements are the most effective stabilizers, substantially reducing the likelihood and severity of runs and fire sales. Redemption gates and lower-duration bond portfolios provide additional but more modest protection by moderating intensity rather than frequency of crises. However, in any case, the paper concludes that international regulatory coordination will be essential to prevent arbitrage. [Source: IMF]