Christopher J Waller: Reflections on a maturing stablecoin market

Speech by Mr Christopher J Waller, Member of the Board of Governors of the Federal Reserve System, at A Very Stable Conference, San Francisco, California, 12 February 2025.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you for inviting me to speak today about stablecoins, an important innovation for the crypto ecosystem with the potential to improve retail and cross-border payments. A little over three years ago, I outlined my views on the benefits and risks of stablecoins. I can think of no better place than this conference to discuss the maturing stablecoin market and examine potential challenges that could impede stablecoins from reaching their full potential.

For the purposes of this speech, I define stablecoins as a type of digital asset designed to maintain a stable value relative to a national currency and backed at least one-to-one with safe and liquid assets. Specifically, a pool of assets is held in reserve so that stablecoins can be redeemed for traditional currency in a timely fashion.

Stablecoins-as with any means of payment-must demonstrate 1) a clear use case and 2) a clear commercial case to be economically viable. These terms are often conflated, but they are different, and both are necessary. Having a use case is how you attract consumers and businesses, while a business model is necessary for issuers of stablecoins to continue operating. As private sector innovators look to expand on the use cases of stablecoins and seek to achieve scale, what might emerge as challenges or roadblocks? This is a question I will explore today, including from a public sector perspective. Of course, as a policymaker, I am not here to endorse any of these use cases or business models, and what follows is not advice or recommendations. Rather, I am discussing them to underscore the varied ecosystem that policymakers must understand.

I will begin by explaining some of the use cases of stablecoins, including those that are well established and those that are still emerging. The primary use of stablecoins is as a safe crypto store of value. In the early days of crypto trading, buying and selling crypto meant trading one crypto-asset for another crypto-asset. As we have seen, crypto prices can fluctuate substantially, which means crypto-assets that are not anchored as stablecoins suffer from price risk. All financial markets crave the existence of a safe, low-risk asset which allows traders to move out of risky positions into safe ones where the safe asset price is known and stable. The beauty of financial innovation is that if a market demands such an asset, someone will figure out how to supply it. Thus, stablecoins were born.