LondonUSD Coin fell 13% in one session, wiping corporate treasury holdings used as overnight cash.
T-bill reserves cannot cover mass redemptions — selling into a stressed market breaks the peg first, Union Investment’s tokenisation chief said.
EU regulators are moving to restrict unauthorised digital assets; the structural gap has no fix.
Sources: CoinDesk
THE PEG IS A PROMISE, NOT A LAW
A stablecoin is worth $1 because the issuer promises to redeem it for $1 — and because arbitrageurs believe the promise. When belief wobbles, the token trades at whatever the secondary market will pay, regardless of what reserves sit in the vault.
WHY T-BILLS AREN'T CASH
Treasury bills are the safest dollar instrument that exists, but safe is not the same as liquid. In a stressed market, selling $10bn of T-bills in a single session moves the price against you — the issuer eats a loss, and the reserve no longer covers the float dollar-for-dollar.
THE 2023 PRECEDENT
USDC depegged to $0.87 in March 2023 after Circle disclosed $3.3bn of reserves stuck at the collapsing Silicon Valley Bank. The reserves were real and recoverable — but redemption was frozen over a weekend, and that was enough for the market to repudiate the peg until Monday's FDIC backstop.
THE BANK-RUN MECHANIC
Stablecoins replicate the structure that the 1933 Glass-Steagall reforms were designed to end: demand liabilities (instantly redeemable tokens) backed by longer-dated assets (T-bills, repo, commercial paper). Banks solved this with deposit insurance and a lender of last resort. Stablecoin issuers have neither.
THE MARKET STRUCTURE
Two issuers dominate: Tether (USDT) at roughly $140bn outstanding and Circle (USDC) at roughly $60bn. Together they are larger than most money-market funds, but operate under fragmentary regulation — Tether is incorporated in El Salvador, Circle in the US, and each jurisdiction sees only a slice of the reserve.
WHY EU REGULATORS MOVED FIRST
The EU's MiCA regulation, in force since 2024, caps non-euro stablecoin daily transactions at €200m per issuer and requires reserves held in EU banks. Brussels treats stablecoins as a monetary-sovereignty issue: a dollar-denominated token circulating freely in the eurozone is, mechanically, dollarization by software.