Stablecoins: financial risks, vulnerabilities, and implications for the future internet — a systematic review

Abstract

Introduction:

The evolution of the Internet toward increasingly decentralized infrastructures is reshaping economic, financial, and social interactions. In this context, stablecoins have gained relevance in digital transactions by offering a lower-volatility medium of exchange through fiat-backed mechanisms within the cryptoasset ecosystem. However, they also introduce financial and regulatory risks that may affect their stability and trustworthiness.

Methods:

This study conducted a systematic literature review on stablecoins using the PRISMA methodology. A total of 122 primary studies indexed in Scopus and Web of Science were selected and analyzed to identify documented financial risks, regulatory vulnerabilities, and their implications for the future of the Internet.

Results:

The findings show that fiat-backed stablecoins, particularly USDT and USDC, are the most frequently analyzed in the literature, followed by crypto-collateralized and algorithmic stablecoins. The most recurrent risks identified include market and liquidity risks, credit risks, and regulatory gaps linked to insufficient transparency and supervision.

Discussion:

The results indicate that the growing integration of stablecoins into digital financial infrastructures could reinforce their relevance in future Internet environments, but also increase systemic vulnerabilities if oversight remains fragmented. Although the expansion of stablecoin use appears likely, clear and coordinated regulatory frameworks are needed to strengthen the stability, trust, and resilience of future digital infrastructures.

1 Introduction

Since the emergence of Bitcoin (BTC), cryptocurrencies have become established as a new class of digital assets with the potential to increase the expected returns of investment portfolios, but also with extreme volatility that makes them highly risky and speculative instruments. In response to this scenario, stablecoins have emerged as a specific solution to the problem of price instability: they are digital currencies designed to maintain a relatively stable value, generally pegged to a fiat currency especially the US dollar or to low-volatility commodities, while preserving the advantages of low transaction costs and the decentralized infrastructure of blockchain networks (Kochergin, 2022; Izadin et al., 2025; Petratos and Baugus, 2025). Through parity mechanisms and different backing schemes, stablecoins operate as a bridge between traditional currencies and volatile cryptoassets, facilitating their use as a means of payment and as liquidity management instruments in digital markets (Hudima et al., 2025).

Unlike central bank digital currencies, which are digital forms of sovereign money issued and backed by a central bank and typically granted legal tender status within a given jurisdiction (Chia and Helleiner, 2024), stablecoins are generally issued by private entities and do not constitute liabilities of a monetary authority (Kochergin, 2020). Legal tender currencies benefit from institutional guarantees, including monetary policy backing, lender of last resort mechanisms, and established supervisory frameworks (Horváth, 2022). In contrast, stablecoins rely on collateral arrangements or algorithmic mechanisms to maintain value stability and operate outside traditional monetary sovereignty structures (Broemel, 2022; Hudima et al., 2025).

In parallel, the rise of Decentralized Finance (DeFi) and the so-called Web3 ecosystem has decisively driven the demand for stablecoins, which are used as units of account, means of exchange, and collateral in lending, trading, and investment protocols built on public blockchains such as Ethereum (Pelagidis and Kostika, 2022; Naifar, 2025b). Web3 refers to the evolution of the Internet towards an ecosystem of applications based on blockchain technology, characterized by decentralized infrastructures that enable the recording, validation, and transfer of information without relying on centralized intermediaries.

This paradigm is supported by the use of distributed ledgers, consensus mechanisms, smart contracts, virtual machines, and tokenization processes, which enable the development of cryptocurrencies, non-fungible tokens, decentralized autonomous organizations, and interoperable virtual environments (Murray et al., 2023). From this perspective, Web3 proposes a reconfiguration of the Internet in which users can exercise greater control over their data, identities, and digital assets, reducing dependence on dominant platforms typical of Web 2.0 (Chen H. et al., 2024).

Since mid-2020, the market capitalization of stablecoins has grown exponentially, despite recent correction episodes. Tether (USDT) has consolidated its position as the third-largest cryptocurrency by market capitalization, behind only Bitcoin and Ethereum, and leads global trading volume, followed by USD Coin (USDC), Binance USD (BUSD), DAI, TrueUSD, and Pax Dollar (Atik et al., 2025). Major cryptocurrency platforms accept stablecoins as a means of payment for digital asset trading, and since 2019 they have been used more frequently than the US dollar itself to purchase Bitcoin, accounting for around 75% of cryptoasset trading volume and constituting the main means of payment in DeFi environments. In practice, they operate as a form of digital fiat currency within the cryptoasset market, although their use beyond this sphere remains limited and constrained by regulatory barriers and still-incipient projects in the traditional financial sector (Fan and Dai, 2023).

In the future, stablecoins are expected to play a significant role in payments, particularly for the settlement of transactions involving tokenized assets on distributed ledgers. It is anticipated that entities and individuals will prefer to use stablecoins that offer high value stability and are virtually risk-free, likely issued by regulated entities. For this to materialize, the development of robust regulatory frameworks is essential to ensure their security as payment instruments, protect consumers, and maintain financial stability, which could lead to the issuance of high-quality stablecoins denominated in fiat currencies with more efficient transaction verification mechanisms (Richards, 2021).

However, the benefits associated with stablecoins are accompanied by significant legal, regulatory, governance, and financial stability risks. Their legal nature is ambiguous; depending on the jurisdiction and specific design, they may be assimilated to money, contractual claims, securities, or financial instruments, which complicates their classification, supervision, and the effective protection of consumers and investors (Kochergin, 2022; Bajakić, 2024).

1.1 Background

The first stablecoins were launched around 2014, but their mass adoption began in 2017 with the rapid growth of USDT. Since then, these currencies have become central components of the cryptoasset ecosystem. Initially, they functioned as a bridge between fiat currencies and volatile cryptocurrencies, providing an operational refuge to mitigate volatility; today, however, they fulfill much broader roles: they facilitate cryptoasset trading, enable fast domestic and cross-border payments, support institutional liquidity management, and are key components of liquidity in DeFi (Bajakić, 2024; Naifar, 2025a; Zhang and Fang, 2025).

Three major families of stablecoins are distinguished. First, stablecoins backed by fiat currency or traditional financial assets are supported by cash reserves and highly liquid equivalents that allow one-to-one redemption against the reference asset; Tether, USDC, BUSD, and TUSD are representative examples. Second, crypto-collateralized stablecoins use other crypto-assets deposited in smart contracts, often in an overcollateralized manner, as in the case of DAI on the Ethereum network. Third, algorithmic stablecoins attempt to maintain parity by automatically adjusting the token supply, without conventional backing, through programmed rules of issuance and burning (Eichengreen et al., 2025; Reijsbergen et al., 2025). Likewise, a distinction is made between those linked to fiat currencies—where the token functions as a digital monetary liability of the issuer—and those referenced to assets such as gold, which represent a property right over a unit of the underlying asset, similar to a certificate of deposit (Kochergin, 2022).

Although they share with historical private banknotes the promise of one-to-one redemption on demand against a fiat currency, many stablecoins are backed by reserves that may be risky and illiquid. This combination—immediate redemption and potentially problematic backing assets—makes them vulnerable to runs similar to those observed in banks and money market funds, without holders generally receiving explicit compensation for this risk, as most stablecoins do not pay interest (Gorton et al., 2025). Empirical evidence further shows that their stability is fragile: approximately 21% of stablecoins have been abandoned at least once, and only 11% of those that regain their peg manage to sustain it over time (Fantazzini and Korobova, 2025).

Recent episodes have highlighted these vulnerabilities with particular clarity. The collapse of TerraUSD (UST) in 2022 revealed the inherent risks of algorithmic designs that depend on a governance token—in this case, LUNA—where the interaction between algorithmic instability, flawed tokenomics, and investor panic dynamics can trigger downward spirals and abrupt price collapses (Almeida and Gonçalves, 2023; Saengchote and Samphantharak, 2024; Eichengreen et al., 2025). Similarly, the failure of Silicon Valley Bank in 2023 directly affected the stability of USDC by partially compromising the reserves held by the issuer at that institution, causing a temporary depeg and contagion effects toward other stablecoins that used USDC as collateral, such as DAI and FRAX (Diop et al., 2024). These events confirm that the stability of stablecoins depends both on their internal design and on their exposure to traditional financial intermediaries.

The growing importance of stablecoins has prompted specific regulatory responses. In the European Union, the MiCAR Regulation avoids using the term stablecoin as an autonomous category and distinguishes between asset-referenced tokens and e-money tokens, establishing prudential requirements, transparency obligations, and liquidity safeguards for issuers and products (Broemel, 2022; Hudima et al., 2025). At the same time, international bodies such as the FSB and the G20 stress that authorities must have sufficient powers, tools, and resources to comprehensively regulate so-called global stablecoins before authorizing their operation, given their potential to affect financial stability, monetary policy, and national sovereignty, especially in small or highly dollarized economies (Shelepov, 2021; Bespalova et al., 2025). Examples such as the Libra/Diem project and experiences with state-backed stablecoins, such as Venezuela’s Petro, illustrate both the appeal of these solutions and the significant regulatory, acceptance, and international coordination challenges they entail (Read and Schäfer, 2020; Aráuz, 2021; Ferreira, 2021; Sheehy et al., 2023; Bespalova et al., 2025).

Recent literature on stablecoins and financial risk has expanded in several directions. At the microeconomic level, some studies emphasize that, despite the costs in terms of financial stability, the introduction of stablecoins can improve household welfare by offering an additional and accessible form of liquidity and innovative payment instruments. Chen and Phelan (2025) show that, under an optimal level of issuance, household welfare can increase significantly, even when the probability of banking crises rises, due to gains in liquidity efficiency and portability. Other studies, such as those by Zhou (2025) and Naifar (2025a), underline that fiat-backed stablecoins, particularly Tether and USD Coin, exhibit greater relative stability and lower risk propagation than cryptocurrencies such as BTC or ETH, acting as diversification instruments during periods of high volatility, although their role as safe havens appears, at times, overstated (Mba and Mai, 2022; Vidal-Tomás, 2023).

Regarding price stability and design mechanisms, Potter et al. (2024) indicate that the stability or instability of a stablecoin depends primarily on the type of asset backing it and the architecture of its redemption and incentive mechanisms. Schemes with volatile collateral or overcollateralized systems may be particularly sensitive to self-fulfilling user expectations and fluctuations in collateral value, whereas fully fiat-collateralized stablecoins tend to exhibit greater stability. Moura de Carvalho et al. (2025), in a review focused on stability, safe-haven properties, and the effects of stablecoins on the crypto market, conclude that fiat-backed stablecoins such as USDT and USDC are more stable and function mainly as diversifiers, while decentralized ones, such as DAI, exhibit greater volatility and sensitivity to shocks.

The empirical literature has documented several episodes of crisis and loss of parity. Diop et al. (2024) analyze the impact of the Silicon Valley Bank collapse on the stability of USDC and show how exposure to specific banking reserves can translate, under stress, into temporary losses of parity and contagion to other stablecoins that rely on such collateral, such as DAI and FRAX. Almeida and Gonçalves (2023) examine the collapse of UST and its relationship with the 2022 crypto crisis, highlighting high volatility and investor risks when the value and returns of cryptoassets decouple. Saengchote and Samphantharak (2024) study the fall of IRON Finance and describe an episode akin to a bank run within the DeFi ecosystem, driven by the fragility of the algorithmic design and the sharp devaluation of the governance token. Fantazzini and Korobova (2025) quantify abandonment and recovery rates of stablecoins, showing that once parity is lost, it is very difficult to sustainably restore market confidence.

Despite the growing body of literature on stablecoins, important conceptual and methodological inconsistencies persist. Existing studies tend to classify stablecoins according to their design or backing mechanisms; however, these classifications are typically limited to the most widely used cases and do not provide a comprehensive and systematic mapping of the broader stablecoin ecosystem, including less prominent or region specific initiatives.

Furthermore, the literature presents heterogeneous and, at times, inconsistent approaches to risk classification, particularly with regard to financial risks. Different studies emphasize distinct categories such as market, liquidity, credit, or systemic risks without adopting a unified framework, which complicates the comparison of findings and the assessment of the relative risk profiles of different stablecoin models.

In addition, although previous reviews have examined stablecoins from general or technological perspectives, there is a lack of systematic reviews specifically focused on identifying and comparing financial risks across different categories of stablecoins. As a result, the relationship between stablecoin design and risk exposure remains insufficiently structured in the literature.

To address these gaps, this study develops a structured classification of stablecoins based on their backing mechanisms and systematically links each category to specific financial risks. By integrating dispersed evidence into a coherent risk based framework, the study advances a clearer understanding of how stablecoin design influences vulnerability patterns.

2 Theoretical framework

Figure 1 presents a diagram of the main variables of the study on the financial risks of stablecoins, addressing three key aspects: first, the identification of stablecoins and their backing mechanisms; second, the types of financial risks associated with their use; and third, the vulnerabilities surrounding their issuance and use. This framework seeks to identify the risks related to stablecoins, as well as the regulatory policies and gaps that must be analyzed to ensure their appropriate use.

FIGURE 1

Regarding the stablecoin variable, the literature describes stablecoins as crypto-assets designed to maintain a relatively stable parity with a reference asset (generally a fiat currency) through different backing schemes and stabilization mechanisms (Kochergin, 2022). In terms of design, stablecoins are structured around three key elements: parity, the stabilization mechanism, and collateralization (Martino, 2024). Three major families of stablecoins are distinguished. First, stablecoins backed by fiat currency or traditional financial assets are supported by cash reserves and highly liquid equivalents that allow one-to-one redemption against the reference asset; Tether, USDC, BUSD, and TUSD are representative examples. Second, crypto-collateralized stablecoins use other crypto-assets deposited in smart contracts, often in an overcollateralized manner, as in the case of DAI on the Ethereum network. Third, algorithmic stablecoins attempt to maintain parity by automatically adjusting the token supply, without conventional backing, through programmed rules of issuance and burning (Eichengreen et al., 2025; Reijsbergen et al., 2025). Likewise, a distinction is made between those linked to fiat currencies—where the token functions as a digital monetary liability of the issuer—and those referenced to assets such as gold, which represent a property right over a unit of the underlying asset, similar to a certificate of deposit (Kochergin, 2022).

Regarding financial risks, these are understood as the probability that an organization or asset incurs losses due to adverse changes in financial market prices or rates, such as interest rates, exchange rates, or commodity prices (Horcher, 2011). Risk arises from the probable variability of returns and materializes when unexpected events negatively affect profitability, complicating financial planning and decision-making. Silva et al. (2017) identify types of financial risk including market risk, liquidity risk, credit risk, financial contagion, leverage, banking consolidation, and crises associated with bank runs and panics. These risks are key elements that can affect the stability and functioning of the financial system as a whole.

In the context of stablecoins, the five classical types of financial risk remain pertinent, although they take on specific forms (Cortés, 2018). Market risk manifests through variations in interest rates, exchange rates, and prices of the assets backing reserves (bonds, crypto-assets, gold), affecting the ability to maintain parity. Credit risk arises when reserves include instruments subject to default, such as commercial paper, corporate bonds, or deposits in banks that may fail. Liquidity risk is central: during runs or mass redemptions, the issuer may be forced to sell assets at a discount or be unable to secure funding under normal conditions. Operational risk encompasses failures in systems, processes, and governance, as well as technical vulnerabilities in smart contracts and oracles, especially in DeFi and algorithmic schemes. Finally, legal and regulatory risk derives from fragmented regulatory frameworks, changes in the legal classification of stablecoins, compliance requirements (KYC/AML), or restrictions on reserves, which can undermine their operation, convertibility, and user confidence.

In this sense, it is noteworthy that the regulation of stablecoins is fundamental because it underpins confidence in these instruments and in the financial system as a whole. By requiring clear standards for reserves, transparency, and issuer solvency, regulation seeks to prevent user losses, redemption runs, and episodes of instability that could have systemic effects (Dark et al., 2022). A robust regulatory framework should be “technologically neutral”: it should not penalize innovation per se, but rather control the real risks associated with stablecoin activities through licensing, registration, prudential requirements, and disclosure rules. It also entails equipping authorities with technical capabilities to supervise these systems, even by integrating control and reporting mechanisms into the technological infrastructure itself, given that issuers may have incentives to assume excessive risk with backing assets (Arner et al., 2020). Therefore, regulating stablecoins means balancing innovation and efficiency with user protection, financial stability, and the safeguarding of monetary policy.

3 Materials and methods

This study was conducted through a systematic literature review, with the aim of identifying and synthesizing the available evidence on stablecoins and their financial risks. This type of study follows an ordered and explicit procedure to search for, select, and analyze prior research, reducing bias and providing a structured overview of the state of the art.

To this end, the guidelines of the PRISMA protocol (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) (Page et al., 2021) were applied, which establishes standardized steps and criteria to document how studies are identified, screened, and included. Based on this framework, search and selection criteria were defined, as well as procedures for extracting and organizing relevant information on the stability, risks, and regulatory implications of stablecoins.

All stages of the review process were systematically documented and made openly available through OSF Records and the Supplementary Materials repository. The corresponding access information is detailed in the Data Availability Statement, and the full set of datasets, matrices, and analytical materials underpinning this study is provided in the Supplementary Materials.

3.1 Information sources and eligibility criteria

To identify the studies, systematic searches were conducted in the Scopus and Web of Science databases, selected for their broad coverage and relevance within the international academic literature. Documents in any language were included, provided they corresponded to the following publication types: academic journal articles, conference papers, book chapters, or review articles. No explicit time restrictions were applied, given that the topic of stablecoins and their relationship with financial risk is emergent and that relevant scientific production is naturally concentrated from approximately 2020 onward. Only studies that directly addressed stablecoins in connection with financial risks, stability, regulation, or impacts on the financial system were considered.

3.2 Search strategy

The search strategy was designed using a block-based approach, combining terms related to the variables stablecoins and risk. The procedure began with the Scopus database, and preliminary results were analyzed in RStudio (version 4.4.2) using the Biblioshiny application, which allowed the identification of additional relevant terms not included in the initial search. With this refinement, the search was subsequently replicated in Web of Science. The final search was carried out on 11 November 2025. In both databases, filters were applied according to the established eligibility criteria, and the search was limited to titles, abstracts, and keywords. This strategy ensured the relevance, timeliness, and academic quality of the studies included in the analysis (see Table 1).

3.3 Selection process

The study selection process was conducted following the stages of identification, screening, and eligibility (see Figure 2). During the identification phase, 259 records were retrieved from two databases: Scopus (n = 151) and Web of Science (n = 108). After removing 100 duplicates, 159 records remained for the initial screening based on title and abstract, from which 9 were excluded for not being related to the research topic. Of the 150 potentially relevant reports, 12 could not be retrieved in full text, leaving 138 studies to undergo eligibility assessment. At this stage, full-text reading led to the exclusion of 16 articles (14 from Scopus and two from Web of Science) due to a high risk of bias or inadequate alignment with the research questions. Ultimately, 122 studies met all the criteria and were included in the systematic review.

FIGURE 2

3.4 Bias risk assessment

To assess the risk of bias and the quality of the studies, a structured evaluation procedure focused on methodological rigor, relevance, and analytical clarity was applied. First, a two-stage selection process (title and abstract, followed by a full-text review) was conducted to exclude studies that did not address the research questions or that did not correspond to peer-reviewed academic documents, such as journal articles, book chapters, or review articles.

Subsequently, during the full-text evaluation, studies with a high risk of bias or that did not answer any research questions were excluded. A high risk of bias was defined as the absence of a clearly described and replicable methodology, ambiguous or unsubstantiated results, a lack of coherent interpretation, or the absence of explicit conclusions and limitations. Particular attention was paid to methodological transparency, consistency between objectives and findings, and the clarity of risk classification frameworks. Furthermore, the selection and evaluation process was carried out independently by all authors. Disagreements regarding quality assessment or inclusion decisions were discussed until a consensus was reached. This procedure reduced the risk of selection bias and individual judgment bias, and strengthened the overall reliability and scientific rigor of the review.

3.5 Synthesis methods

For data synthesis, the most relevant excerpts and results from each included study were extracted, prioritizing those that described types of financial risk, regulatory approaches, and the impacts of stablecoins. These data were organized in a systematization matrix developed in Microsoft Excel, where the characteristics of each study and its main findings were recorded in a structured manner. Subsequently, a thematic categorization was conducted, grouping the evidence into common conceptual axes to facilitate comparison. This procedure enabled a clear and coherent synthesis of the literature, supporting the identification of patterns, convergences, divergences, and knowledge gaps regarding stablecoins and financial risk.

4 Results

4.1 Bibliometric data

To identify research trends and characterize the evolution of the academic debate on stablecoins and financial risks, a bibliometric analysis was conducted. This analysis provides an overview of the field’s context by examining the temporal distribution of publications, the geographical concentration of research output, and the most recurrent thematic terms through keyword analysis. The distribution by year allows for the identification of periods of increased academic attention, often linked to market events or regulatory developments. The distribution by country highlights the regional concentration of research and potential asymmetries in knowledge production. Furthermore, the keyword cloud facilitates the recognition of dominant conceptual patterns and emerging themes within the literature.

Regarding the temporal distribution of the studies included in the systematic review, it is observed that publications begin to be recorded from the year 2020, with no previous works found in the consulted databases (see Figure 3). Since that year, the number of identified studies shows a progressive increase, going from 8 publications in 2020 to 12 in 2021, and 17 in 2022, with a subsequent rise in 2023 (20 studies), 2024 (24 studies), and 2025 (41 studies). This temporal distribution indicates that the academic interest in the topic is relatively recent, and the highest concentration of publications occurs in the years closest to the present period.

FIGURE 3

Regarding the geographical distribution of the studies included in the systematic re-view, it is observed that scientific production is primarily concentrated in a limited number of countries, with an unequal presence globally. The United States records the highest number of publications, followed by countries such as the United Kingdom, China, Spain, and Germany, indicating greater research activity in regions with more developed financial and technological ecosystems (see Figure 4). In contrast, other countries show limited participation, with one or a few studies identified, while large regions of the world have no records in the consulted databases.

FIGURE 4

The word cloud generated from the keywords of the analyzed studies shows a greater presence of terms such as cryptocurrency, risk, stablecoin, policy, and learning, which stand out due to their relative size (see Figure 5). Other frequently occurring concepts include value, Bitcoin, blockchains, stability, volatility, and liquidity, reflecting the diversity of topics addressed in the literature. Terms related to quantitative and methodological approaches are also identified, such as parameter, quantile, GARCH, and causality, along with expressions associated with digital infrastructure and decentralized finance, such as DeFi, interoperability, connectedness, and security. The distribution of these words reflects the broad range of topics covered in the included studies, with simultaneous presence of financial, technological, and regulatory dimensions.

FIGURE 5

4.2 Stablecoin backing mechanisms

Stablecoins are cryptocurrencies designed to maintain a stable value, generally pegged to an underlying asset such as a fiat currency, a commodity, or maintained through algorithmic mechanisms. The backing or support of these stablecoins is fundamental to ensuring their stability, as it determines their ability to maintain parity with the reference asset. There are several categories of stablecoins, including fiat-backed stable-coins, crypto-backed stablecoins, and algorithmic stablecoins, each with different collateralization mechanisms and associated risks. Table 2 presents a summary of the stable-coins identified in the reviewed studies, categorized according to their type of backing, in order to provide a clearer overview of the characteristics and vulnerabilities of each cate-gory.

The stablecoins identified in the reviewed studies show a clear predominance of fi-at-collateralized models, particularly those backed 1:1 by the U.S. dollar, such as USDT (Tether), USDC, BUSD, TUSD, and USDP/PAX. These stablecoins account for the highest market penetration and represent the most widely used operational standard across ex-changes, payment systems, and DeFi platforms. They have become the most commonly adopted instruments due to their greater recognition, liquidity, and compatibility with both centralized and decentralized financial infrastructures. To a lesser extent, stablecoins backed by other fiat currencies also appear, such as EURT and EURS (pegged to the euro), as well as local initiatives such as Peso ARS or Digital Sol; however, the latter lack formal state backing and exhibit lower levels of adoption.

The second most prevalent group consists of crypto-collateralized stablecoins, with DAI (MakerDAO) standing out as the main reference due to its over-collateralization de-sign and its central role within the DeFi ecosystem. Alongside DAI, alternatives such as LUSD, sUSD, VAI, and CUSD are identified, whose backing is based on digital assets, in some cases complemented by fiat-backed stablecoins to enhance stability. These stablecoins offer a more decentralized approach, although they remain highly dependent on the volatility of the cryptoasset market.

Algorithmic stablecoins, while numerically diverse, exhibit more limited participation and a considerable risk history. Cases such as TerraUSD (UST) and IRON document severe failures linked to their reliance on endogenous price-stabilization mechanisms. Hybrid models such as FRAX seek to address these shortcomings through partial collateralization, while other proposals (USDD, FEI, Basecoin) represent variations of the concept that have not yet achieved comparable levels of stability or market confidence.

Finally, a relevant group is formed by commodity-backed stablecoins, mainly those backed by gold, such as XAUT, PAXG, DGX, and PMGT, which provide an anchor to physical assets and a risk profile distinct from purely financial models. Special projects are also identified, including Petro, backed by natural resources, and tokens based on cash held in vaults, such as Rockz.

4.3 Financial risks associated with stablecoin

Table 3 presents an analysis of the specific risks associated with each type of stable-coin, categorizing these risks according to their nature and potential impact. The analysis primarily identifies financial risks affecting stablecoins, grouped into four broad categories: market and liquidity risks, credit and collateral risks, systemic and contagion risks, and governance, operational, and regulatory risks. These categories reflect the inherent challenges of different stablecoin models, whether backed by fiat currencies, cryptoassets, algorithms, or tangible commodities.

The reviewed literature shows that fiat-backed stablecoins such as USDT, USDC, and BUSD face substantial market and liquidity risks, particularly under stress conditions, largely driven by uncertainty about the quality and availability of their backing. They are also exposed to credit risk linked to the assets supporting these coins, as well as systemic and spillover risks due to their growing integration with the traditional financial system.

Crypto-collateralized stablecoins such as DAI and LUSD are subject to market and liquidity risks stemming from declines in crypto-collateral prices, which can trigger deleveraging spirals. They also face collateral-related risks due to the volatility of the underlying assets, and systemic and contagion risks because they are interconnected with other DeFi protocols and cryptoassets.

Algorithmic stablecoins, such as TerraUSD and FRAX, are vulnerable to parity losses and “death spirals” when the governance token depreciates. These coins also exhibit systemic risks, as illustrated by the collapse of TerraUSD and its effects on the broader crypto ecosystem, and credit-like vulnerabilities due to the absence of hard, tangible guarantees.

Finally, commodity-backed stablecoins—particularly gold-backed ones—face market risks driven by volatility in the underlying commodities, collateral risks associated with custody and verification of physical backing, and regulatory risks related to insufficient auditing and limited transparency over physical reserves.

4.4 Regulatory approaches associated with stablecoins

Regulatory approaches to stablecoins combine country-specific frameworks with coordinated international standards. Institutions such as the International Monetary Fund, the Financial Stability Board, the Committee on Payments and Market Infrastructures, IOSCO, the Basel Committee, and the FATF broadly converge on the need to apply the principle of “same activity, same risk, same regulation,” strengthen prudential, governance, and transparency requirements, and prevent regulatory gaps that enable arbitrage (Bespalova et al., 2025; Disparte, 2021; Fantazzini and Korobova, 2025; Pastor Sempere, 2020). The G7 and the OECD further stress that global or systemically significant stablecoins should not operate at scale until clear frameworks for financial stability, market integrity, AML/CFT, and consumer protection are in place (Ferreira, 2021; Read and Schäfer, 2020; Travkina et al., 2022).

In the European Union, Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA) represents the most comprehensive framework to date (Alcorta, 2025; Cifuentes, 2025). MiCA creates distinct categories for asset-referenced tokens and e-money tokens, requires a white paper, prior authorization for issuance and trading, capital and liquidity requirements, risk management policies, governance standards, and strict disclosure and custody obligations (Broemel, 2022; Ferreira and Sandner, 2021; Kochergin et al., 2024). The regulation also distinguishes “significant” stablecoins subject to enhanced supervision by the European Banking Authority, and it limits room for algorithmic designs, effectively prohibiting purely algorithmic stablecoins in the European market (Bajakić, 2024; Saengchote and Samphantharak, 2024). Coinbase’s decision to delist USDT in the European Economic Area illustrates how MiCA is already reshaping stablecoin supply in the region (Perez Riaza and Gnabo, 2025).

In the United States, the regulatory landscape remains fragmented, relying on existing frameworks alongside legislative proposals under debate. The President’s Working Group on Financial Markets, together with the FDIC and the OCC, recommends treating stablecoin issuers as supervised depository institutions, fully backed 1:1 by safe assets such as U.S. Treasuries or central bank reserves (G. Gorton and Zhang, 2023; Ikeno et al., 2023; Marthinsen and Gordon, 2024). The Financial Stability Oversight Council and the SEC apply securities, derivatives, and payments rules to specific cases (Bossman et al., 2024; Cianci et al., 2023; Darlin et al., 2022), while state-level laws such as the Texas Money Services Act and New York regulator guidance impose reserve requirements, custody in regulated institutions, and periodic audits (Kochergin, 2022). Proposals such as the 21st Century Act or the Stablecoin TRUST Act seek a unified federal regime, but they coexist with supervision centered on KYC, AML/CFT, and prudential accountability for issuers and platforms (Singh et al., 2024; Wolfson et al., 2025).

Other advanced jurisdictions have adopted tailored regimes aligned with their financial systems. The United Kingdom, through the Financial Services and Markets Act, recognizes certain stablecoins as systemic payment instruments under FCA oversight, with liquidity, asset segregation, and investor protection requirements (Hudima et al., 2025; Wolfson et al., 2025). Japan applies strict reserve and custody rules under its Payment Services Act, limiting issuance to regulated entities. Singapore follows a more flexible approach under a Payment Services Act, promoting innovation while requiring licensing, prudential controls, and clear redemption requirements (Hudima et al., 2025; Singh et al., 2024). Switzerland, through FINMA, classifies stablecoins based on the type of backing and the rights conferred to holders, applying banking, securities, or payments-infrastructure regulation depending on the case (Kochergin, 2020; Parrondo, 2020; Read and Schäfer, 2020). Liechtenstein and the EU have also implemented AML directives requiring the registration and supervision of exchanges and wallet providers (Teichmann and Falker, 2020).

In parallel, central banks and regulators in several emerging economies have reacted primarily with a risk-containment and monetary-sovereignty lens (Disparte, 2021; Pelagidis and Kostika, 2022). China and Russia restrict the use of stablecoins in settlements to protect national currencies (Shelepov, 2021), while India combines a conservative central bank stance with high taxation on cryptoassets, which affects stablecoin adoption (Singh et al., 2024). Other countries, such as Brazil (Pix) or India (UPI) in the payments domain, have built public payment infrastructures offering domestic digital alternatives, reducing the appeal of private stablecoins for internal payments (Aráuz, 2021). At the same time, multiple central banks (e.g., the ECB and the Bank of England) are exploring central bank digital currencies as a structural response to the risks posed by global stablecoins (Kochergin, 2022; Pelagidis and Kostika, 2022).

Overall, regulatory approaches converge on core elements: high-quality reserve requirements, redemption stress-testing, independent audits, robust corporate governance, strict AML/CFT compliance, and consumer protection. Yet, differences persist regarding the acceptance or prohibition of algorithmic models, who can issue (banks versus non-banks), the degree of integration with deposit insurance, and how to address global stablecoins. This diversity reflects both the still-experimental stage of the phenomenon and the tension between fostering financial innovation and preserving the stability of the international monetary and financial system.

4.5 Vulnerabilities of stablecoins and their implications for the future of the internet

Stablecoins introduce a set of structural vulnerabilities that transcend the financial realm and project directly onto the architecture and governance of both the current Internet and the future Internet. One of the main sources of vulnerability stems from the absence of a harmonized international regulatory framework, leading to significant regulatory fragmentation between jurisdictions (Kochergin, 2020; Pastor Sempere, 2020; Teichmann and Falker, 2020; Adrian and Mancini-Griffoli, 2021; Li and Shen, 2021; Bossman et al., 2024). The coexistence of strict regulatory approaches, such as the MiCA regulation in the European Union, with more flexible models in Singapore or Switzerland, and restrictive stances in China or partially in the United States, generates regulatory arbitrage, legal uncertainty, and an uneven competitive environment in Internet-based digital ecosystems (Carata and Knottenbelt, 2024; Hudima et al., 2025; Vidal-Tomás, 2025). This fragmentation is exacerbated by the lack of a unified global definition of stablecoin and consistent criteria for its legal classification—such as electronic money, negotiable value, deposit, or hybrid instrument—which complicates the determination of the applicable regime, the competent supervisory authority, and the actual rights of users, especially in scenarios of insolvency or issuer bankruptcy (Salami, 2021; Broemel, 2022; Cheng and Torregrossa, 2022; Kochergin, 2022; Fantazzini and Korobova, 2025; Joebges et al., 2025).

Another critical dimension of vulnerability relates to the management of reserves, liquidity, and transparency—key aspects for trust in Internet-based financial infrastructures (Aliu and Nuhiu, 2025). The literature shows the lack of homogeneous standards regarding the quality, composition, location, and availability of collateral assets, as well as the frequency and minimum content of reserve reports (Bespalova et al., 2025; Perez Riaza and Gnabo, 2025). The absence of independent audits in near real-time, the opacity in collateral management, and the lack of mandatory stress tests limit the capacity to anticipate episodes of peg loss, illiquidity, or digital runs (Eichengreen et al., 2025; Zhou and Guo, 2025). These weaknesses are particularly sensitive in fiat-backed stablecoins exposed to private debt, commercial paper, or uninsured deposits, as well as in crypto-collateralized and algorithmic designs where risks related to collateral, price oracles, and smart contracts lack specific prudential standards (Odinet and Tosato, 2023; Fantazzini and Korobova, 2025; Reijsbergen et al., 2025).

From a governance and consumer protection perspective, several studies warn that many stablecoin issuers effectively operate as “unregulated banks,” without access to a lender of last resort, deposit insurance schemes, or clear rules on creditor hierarchy (Miriyeva, 2022; Gorton and Zhang, 2023; Diop et al., 2024). Regulatory gaps persist regarding the treatment of governance tokens, the obligations of centralized operators and external custodians, and the management of conflicts of interest in highly leveraged DeFi protocols (Salami, 2021; Darlin et al., 2022; Saengchote and Samphantharak, 2024). As a result, consumer protection is inconsistent: in many markets, it is unclear whether holders have direct rights to the underlying assets, what happens in the event of redemption suspensions, or what responsibilities issuers have regarding fraud, operational failures, or cyberattacks.

These vulnerabilities are compounded when considering macroprudential and systemic supervision. Regulation of stablecoins linked to DeFi protocols and algorithmic models remains incomplete and largely reactive (Cianci et al., 2023; Feng J. et al., 2024). Existing frameworks often rely on ex post aggregated data and do not systematically incorporate early-warning risk indicators, such as peg instability, flows between DeFi protocols, market sentiment, or interdependencies with banks, investment funds, and critical financial infrastructures (Ti and Husodo, 2024). Despite their growing role as a medium of exchange, collateral, and unit of account in the financial Internet, stablecoins are still not fully integrated into financial stability frameworks or systemic stress tests (Chen and Huang, 2025).

In the context of the future Internet, these vulnerabilities take on additional significance. In emerging economies, dollarized countries, or Islamic finance environments, the accelerated adoption of stablecoins could amplify risks of capital flight, banking disintermediation, and erosion of monetary sovereignty, without the existence of regulatory tools tailored to these realities (Aráuz, 2021; Ferreira and Sandner, 2021; Kreuzer et al., 2024; Husodo et al., 2025). The reliance on decentralized protocols, price oracles, automatic liquidation mechanisms, and token-based governance introduces risks of deleveraging cascades, systemic failures, and fragmented oversight in an environment where code, liquidity, and users are globally distributed (Salami, 2021; Canepa, 2022).

Technical and compliance challenges further reinforce these vulnerabilities. The strong interconnection between stablecoins, DeFi protocols, and traditional financial markets increases the contagion risk during crises (Klages-Mundt et al., 2020; Alamsyah and Salsabila, 2024; Dotsenko et al., 2024; Wolfson et al., 2025). Failures in smart contracts, interoperability issues, operational errors, or cyberattacks could disrupt payments and settlement processes, amplifying episodes of mistrust in critical digital infrastructures (Sood et al., 2023; Virovets et al., 2025). Furthermore, the potential use of stablecoins for money laundering and other illicit activities requires enhanced supervisory and compliance mechanisms without compromising the advantages of speed, accessibility, and innovation that made them attractive in the first place (Shelepov, 2021; Jain et al., 2023; Vidal-Tomás, 2025).

5 Discussion

Stablecoins have grown considerably in popularity due to their ability to provide stability in a highly volatile cryptoasset market. However, different types of stablecoins—whether backed by fiat currencies, cryptoassets, or even algorithms—entail inherent risks that vary depending on their backing mechanism. These findings align with Wolfson et al. (2025), who classify stablecoins into three types: fiat- or asset-backed stablecoins, such as USDT and USDC, managed by centralized entities; crypto-backed stablecoins, such as DAI, which use cryptoassets as collateral and operate in a decentralized manner through smart contracts; and algorithmic stablecoins, which do not employ collateral and adjust token supply through algorithms to maintain stability.

Fiat-backed stablecoins are the most widely used and are generally perceived as more stable due to their 1:1 backing with liquid assets such as the U.S. dollar. Nevertheless, these stablecoins face market and liquidity risks, such as parity losses during market stress, which can lead to runs if investors doubt the soundness of the underlying reserves. As Rahman et al. (2025) note, Tether—one of the leading U.S. dollar–pegged stablecoins—has been under suspicion due to the opacity and adequacy of its reserves, raising fears that, if it were unable to meet redemptions, it could trigger a broader collapse in the crypto market. These risks are particularly concerning due to issuer centralization, which constrains transparency and increases the risk of fraud or manipulation of reserve reports, as highlighted by Guan et al. (2025), Hamm et al. (2025) and Alamsyah and Salsabila (2024).

By contrast, crypto-collateralized stablecoins such as DAI are backed by cryptoassets like Ethereum. These coins offer a more decentralized model, but they are exposed to market risks stemming from the high volatility of their collateral. If cryptoasset prices fall sharply, depegging events may occur, in which the stablecoin’s value detaches from the fiat currency to which it is supposedly linked. Moreover, these models may experience deleveraging spirals and cascading liquidations if collateral values fall outside required margins, creating systemic risk for DeFi protocols in which these stablecoins are used as a means of payment or as liquidity assets. As Lee et al. (2025) indicate, this type of stablecoin is particularly vulnerable to fluctuations in major crypto markets such as BTC and ETH, generating risk interconnections between the crypto market and stablecoins.

Algorithmic stablecoins, such as TerraUSD (UST), are even more vulnerable to governance and operational risks due to the absence of physical collateral. These stablecoins rely on smart contracts and algorithms that adjust token supply in circulation to maintain parity. However, during crises of confidence, algorithmic models can collapse rapidly, as occurred with UST during the Terra–Luna incident in 2022. The collapse of the governance token in these systems can trigger death spirals in which the stablecoin’s value falls irreversibly. This situation underscores the urgent need for stricter regulation and transparent audits to oversee these algorithmic models and prevent risk contagion to other digital assets, as argued by Saengchote and Samphantharak (2024).

Regulatory initiatives have emerged to address these vulnerabilities. MiCA, for example, establishes stricter requirements for stablecoin issuers in Europe, ensuring reserve transparency and risk management. Alcorta (2025) emphasizes that MiCA is central to European regulation, as it sets minimum reserve and own-funds requirements, strong internal controls and risk management, clear governance, and transparency through a notified white paper. These measures aim to protect users and financial stability. However, regulatory gaps persist, especially in countries with inadequate legal frameworks to regulate the stablecoin market, as observed in Latin American contexts where the lack of specific regulation generates legal uncertainty (Cifuentes, 2025). The interconnection between stablecoins and traditional financial systems also poses risks to monetary policy and financial stability, increasing pressure on governments to implement appropriate regulatory frameworks to control the effects of these currencies in global markets (Parrondo, 2020). Kochergin and Ivanova (2022) suggest that, in the future, CBDCs could represent a safer alternative to stablecoins by ensuring stronger supervision and control of the global financial system.

The literature shows that, although stablecoins represent a valuable innovation in financial markets, they are far from immune to systemic, governance, and operational risks. The findings of this study, aligned with those of authors such as Lee et al. (2025) and Saengchote and Samphantharak (2024), highlight the urgent need for a robust regulatory framework that ensures transparency, backing soundness, and adequate oversight to mitigate depegging risks, collapses, and adverse effects on global financial stability.

5.1 Analysis of stablecoins for the future internet

The evidence synthesized in this review allows us to interpret stablecoins as structural components of the financial Internet, with the capacity to either amplify or mitigate systemic vulnerabilities in highly interconnected digital environments. In the future Internet, where payment systems, settlement, and liquidity provision are progressively integrated into infrastructures based on distributed networks, stablecoins function as critical layers of exchange and trust anchors, with their design and governance determining the stability of the digital ecosystem.

From this perspective, the financial and regulatory risks identified in the literature project onto the architecture of the financial Internet. Regulatory fragmentation, the absence of harmonized international standards, and the heterogeneity in the legal classification of stablecoins create an environment of uncertainty that complicates interoperability and consistent oversight of cross-border digital infrastructures. In the context of the future Internet, this fragmentation increases the likelihood of regulatory arbitrage and the concentration of risks in specific nodes of the system, affecting the resilience of payment networks and Internet-based financial platforms.

Weaknesses associated with the management of reserves, liquidity, and transparency gain increased relevance when stablecoins are extensively used as payment mediums, collateral, and units of account in digital ecosystems. The lack of near real-time audits, mandatory stress tests, and homogeneous prudential standards limits the ability to anticipate systemic failures, exposing the financial Internet to episodes of trust loss, operational disruptions, and contagion effects between interconnected platforms. In this context, the stability of stablecoins becomes a key determinant of the reliability of future digital infrastructures.

In terms of governance, the coexistence of centralized and decentralized models introduces additional challenges for the development of the financial Internet. Centralized schemes facilitate supervision and regulatory intervention, while models based on protocols and token governance complicate the assignment of responsibilities, accountability, and the application of traditional consumer protection mechanisms. This tension between decentralization and regulatory control represents a persistent vulnerability of the emerging financial Internet, especially in stress scenarios where coordinated responses are required.

From a systemic perspective, the increasing integration of stablecoins with DeFi protocols, traditional financial markets, and critical payment infrastructures amplifies the risk of cascading failures in the future Internet. Automated liquidation mechanisms, dependence on price oracles, and technical interdependencies between platforms accelerate the transmission of shocks, transforming localized problems into broader disturbances. This phenomenon reinforces the need to consider stablecoins within macroprudential oversight frameworks and financial stability as critical digital infrastructure.

The implications of stablecoins for the future Internet vary according to the economic and institutional context. In emerging economies, dollarized countries, or environments with less developed financial systems, the intensive adoption of stablecoins may intensify processes of banking disintermediation, capital flight, and pressure on monetary sovereignty, without the existence of regulatory frameworks adapted to these dynamics. These asymmetries highlight the need for differentiated and coordinated regulatory approaches that recognize the structural role of stablecoins in the financial Internet, while preserving the stability, trust, and sustainability of the digital ecosystem.

This review argues that stablecoins represent a point of intersection between finance, regulation, and digital infrastructure, whose implications for the future Internet depend on the consistency between their design, control mechanisms, and the ability of regulatory frameworks to evolve at the pace of technological innovation. Recognizing this infrastructural character is essential to anticipate systemic risks and guide the development of a more resilient and trustworthy financial Internet.

5.2 Study limitations

This study presents several limitations that should be acknowledged. The literature search was restricted to Scopus and Web of Science, which, despite their academic rigor and broad coverage, may introduce selection bias by excluding relevant studies indexed in other databases or published as institutional and policy reports.

The included studies exhibit considerable heterogeneity in research design, methodological approaches, and analytical frameworks. The coexistence of theoretical contributions, empirical quantitative analyses, legal studies, and conceptual discussions limits comparability and constrains the extraction of standardized conclusions across stablecoin categories. Due to this diversity, no quantitative synthesis or meta analysis was conducted. The findings therefore rely on qualitative thematic analysis, which is suitable for identifying conceptual patterns but does not allow for measuring the magnitude or statistical significance of the identified risks.

The review does not provide an exhaustive technical evaluation of individual stablecoin models, limiting the assessment of their specific operational mechanisms and real world performance. Although regulatory frameworks are examined, the study does not include a systematic evaluation of the effectiveness of specific regulations such as MiCA or jurisdiction based impact assessments, which restricts conclusions regarding their practical risk mitigation capacity.

5.3 Future research

Future research could focus on a deeper analysis of each type of stablecoin and its performance under different market conditions, as well as on assessing the impact of existing and developing regulations on stability and confidence in the global stablecoin market. This includes a particular focus on regulatory effects worldwide, comparing how different national regulations affect stablecoin stability and trust. Complementarily, future lines of inquiry could explore the potential use of stablecoins in Popular and Solidarity Economy contexts, particularly in emerging countries, where these technologies could facilitate financial inclusion, community-based payments, remittances, and access to alternative financial services. Assessing their compatibility with principles of solidarity, cooperation, and sustainability—as well as the risks their adoption could generate for community organizations and local economies—would allow a more comprehensive evaluation of the role of stablecoins beyond the traditional financial system.

6 Conclusion

This study examined the main categories of stablecoins and the financial risks associated with their design and governance mechanisms. The literature mainly identifies three types of stablecoins: those backed by fiat currencies such as USDT and USDC, those backed by cryptoassets such as DAI, and algorithmic stablecoins such as TerraUSD. Each type adopts a different approach to maintaining its value, either through tangible collateral or through algorithmic mechanisms. This diverse landscape reflects the evolution of stablecoins and their adaptation to different needs within the digital financial market. However, although most of these stablecoins are presented as reliable instruments, their backing mechanisms vary significantly, introducing a range of risks associated with their long-term stability and sustainability.

The financial risks associated with stablecoins are deep and multifaceted. Fiat-backed stablecoins, despite being supported by liquid assets such as the U.S. dollar, are not exempt from liquidity and market risks. In stress scenarios, the loss of parity may trigger runs, as has already been observed in the case of Tether (USDT), raising questions about the stability of its backing. By contrast, crypto-collateralized stablecoins, although decentralized, are vulnerable to the extreme volatility of the cryptoassets that support them. In particular, the DAI model, which relies on cryptoassets such as Ethereum, faces depegging risks in scenarios of sharp declines in the value of these assets. Meanwhile, algorithmic stablecoins such as TerraUSD are in an even more fragile position, as they rely exclusively on smart contracts and algorithms to maintain parity, making them extremely vulnerable to crises of confidence. These risks highlight the need for a thorough under-standing of the internal dynamics of each type of stablecoin and how their underlying structures can affect their stability.

With regard to the regulation of stablecoins, regulatory gaps continue to represent a significant barrier to their global adoption. Although regulatory frameworks such as MiCA in Europe seek to provide greater transparency and control over stablecoin issuance, major challenges remain in implementing universal rules capable of ensuring the safety of these assets worldwide. Regulatory gaps in developing countries and the lack of coherent global legislation generate legal uncertainty and risks related to reserve manipulation and opacity in the management of these assets. Moreover, the interconnection of stablecoins with traditional financial systems poses risks to global monetary policy, reinforcing the need for stricter regulations that balance innovation with the protection of the financial system. In this context, proposals for central bank digital currencies (CBDCs) could represent a safer alternative to stablecoins, offering more robust supervision and control over the issuance and backing of these currencies. However, for stablecoins to effectively and safely fulfill their role in the global economy, it will be crucial for governments and inter-national financial institutions to develop clear and harmonized regulatory frameworks.

From a policy perspective, the findings underscore the need for risk based regulatory frameworks that differentiate between stablecoin models according to their backing mechanisms and systemic exposure. Policymakers should prioritize enhanced transparency requirements, reserve quality standards, mandatory stress testing, and the integration of stablecoins into macroprudential supervision frameworks. Given their increasing role within Internet based financial infrastructures, regulatory coordination across jurisdictions becomes essential to mitigate cross border contagion risks and regulatory arbitrage.

Taken together, this study contributes to the literature by providing a systematic and structured classification of stablecoins and explicitly linking each category to specific financial risks. Unlike previous reviews that focus primarily on technological features or general market dynamics, this research develops a coherent analytical framework that connects stablecoin design, risk typologies, and implications for the future financial Internet. By integrating dispersed findings into a comparative structure, the study advances a clearer understanding of how different stablecoin architectures shape distinct vulnerability patterns.

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