- New research from MIT warns stablecoins could depeg during market stress due to underlying infrastructure, despite having quality reserves.
- Critical vulnerabilities include reliance on Treasury market intermediaries and potential smart contract bugs or failures.
- The current legislative framework, the Genius Act, fails to address these operational and technical risks, according to the findings.
- Experts, including Treasury Secretary Scott Bessent, still predict massive growth, with US dollar stablecoins potentially reaching $3 trillion by 2030.
New research from MIT reveals hidden risks threatening stablecoin stability that current US legislation fails to address. This comes as experts forecast the market for US dollar stablecoins could swell to $3 trillion by 2030, making their resilience critical.
However, the study found a stablecoin’s peg depends not just on its assets but on functioning redemption mechanisms and markets. Consequently, even stablecoins fully-backed by liquid assets like US Treasuries face depegging risks during stress. For example, broker-dealers acted as a bottleneck during the March 2020 market crash, widening bid-ask spreads on treasuries. A similar event today could trigger a run and knock a stablecoin off its peg, according to the researchers.
Meanwhile, smart contract logic flaws and bridge failures rank as high-severity technical vulnerabilities. Operational errors also pose a threat, as seen when Paxos accidentally minted $300 trillion PYUSD last year. The researchers argue the Genius Act framework “leaves these stress-contingent dynamics largely unspecified.”
The legislative debate in the US is currently delayed by banks contesting crypto yield offerings. If the law overlooks these newly highlighted infrastructure risks, this may not be Congress’s final stablecoin battle.
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