Huoxing Finance reports that on May 26, The Wall Street Journal published an article stating that stablecoins are essentially "private currencies." Although the GENIUS Act and the CLARITY Act are attempting to bring stablecoins into regulatory compliance, they may still pose structural risks to the financial system. The article notes that stablecoins aim to combine the stability of the U.S. dollar with the high efficiency of blockchain payments, but because they operate on fragmented, privatized infrastructure, they lack the "uniformity" inherent in the traditional dollar system. Although USDT and USDC are pegged to the U.S. dollar, their prices still deviate from $1. Stablecoin issuers have an inherent incentive to scale up and pursue yield, potentially increasing returns by investing in riskier, less liquid assets. If the value of these assets declines, stablecoins may fail to maintain their peg, triggering mass redemptions and cascading market effects. Additionally, citing Chainalysis data, the article states that stablecoins account for 84% of crypto-related illicit activities, including sanctions evasion and money laundering. Currently, the primary use of stablecoins remains crypto trading, with less than 1% used for real-economy payments. Stablecoins are replaying the historical path of private currency experiments during 19th-century America’s Free Banking Era. Although stablecoins represent a significant direction in the evolution of payment technology, they may eventually need to be subject to stricter regulation and deeper integration into central bank systems—much like traditional banks.
The Wall Street Journal: Stablecoins Pose Structural Risks to the Financial System
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Summary
CFT concerns are growing as the Wall Street Journal reported on May 26 that stablecoins, classified as 'private money,' may threaten financial system stability. They frequently lose their $1 peg due to fragmented infrastructure and issuer incentives to pursue higher-yield assets. Chainalysis data shows that 84% of stablecoin flows are linked to illicit activities, with minimal use in real-world payments. These risks underscore the need for stronger oversight in liquidity and crypto markets, akin to past failures of private currencies.
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