T
The Bitcoin Act
Guest
Every financial instrument looks sound until the day it is asked to perform under pressure. Stablecoins have not had that day yet.
That is the core message of a new report from the Financial Stability Board, the body that coordinates financial regulation for the G20. The FSB found that global stablecoins have not been tested under severe stress or insolvency. It also found that the national rules meant to govern them are developing at different speeds.
The result, in the FSB’s view, is a gap. If a major issuer failed, it is not clear how holders would recover their funds.
For bitcoiners, this is a familiar argument in unfamiliar clothing. It is worth reading closely anyway.
The numbers explain why the FSB is paying attention. Stablecoin capitalization stood at around $206 billion at the start of 2025 and has since grown to $306 billion. Most of that value sits in tokens pegged to the U.S. dollar.
Today, much of that capital is used to move in and out of crypto markets. The FSB acknowledges that stablecoins could eventually support faster and cheaper payments, including across borders. That potential is exactly what makes the regulatory picture uncomfortable.
In a letter accompanying the report, FSB Chair Andrew Bailey wrote that global stablecoin arrangements are international by their nature, while national regulation is taking shape unevenly and cooperation between jurisdictions remains at a very early stage.
Bailey, who is also Governor of the Bank of England, has previously warned that international stablecoin rulemaking had stalled. This report reads as an attempt to restart it.
The most technically interesting part of the report concerns what the FSB calls multi issuer structures.
In these arrangements, affiliated companies issue the same stablecoin and share liability for it. Each entity may hold its reserve assets in a different jurisdiction.
On a calm day, this is an operational detail. In a crisis, it becomes a structural weakness.
If holders can redeem with any issuer in the group, redemption demand can concentrate on a single entity. The assets needed to meet that demand may sit somewhere else entirely. The FSB warns that moving reserves between jurisdictions may become harder during a crisis, which is precisely when it would matter most.
Then comes the legal question. If one issuer in the group fails, the FSB notes it may be difficult to determine which country’s insolvency rules would apply.
This deserves more attention than it usually gets. Insolvency law is where a financial promise is finally converted into an actual recovery, or into a loss. A holder who believes they own a claim worth one dollar needs to know against whom that claim runs, in which court it will be heard, and how it ranks against other creditors. When liability is shared across affiliated entities and reserves are scattered across borders, each of those answers can be contested. Litigation over jurisdiction alone could take longer than any run would last.
The FSB does not resolve this. It identifies it, which is the necessary first step.
The report flags a second mismatch, this one about time.
Stablecoins trade around the clock. The markets for the assets that back them keep set operating hours. During a run, if redemptions cannot keep pace with selling, a token may lose its peg.
The FSB is careful to note the counterweight. Deep and liquid secondary markets can help pull a token back toward its peg through arbitrage. A peg under pressure is not automatically a peg that breaks.
But the report also describes how a break could travel. Forced reserve sales and bank deposit withdrawals could carry the shock into traditional financial markets as investors scramble for liquidity.
That is the transmission channel regulators care about most. A stablecoin failure would not stay inside crypto if the reserves behind it have to be liquidated in conventional markets at speed.
The FSB also identifies weak data as an obstacle. The pseudonymous nature of crypto transactions can make it hard to know where holders are located and, by extension, which jurisdiction’s rules apply to them.
This connects directly back to the insolvency question. A regulator cannot plan a resolution for holders it cannot locate, and a court cannot easily allocate claims among creditors whose residence is unknown.
The recommendations are modest in form. The FSB calls for more cross-jurisdictional information sharing, more monitoring, and more planning for stablecoin distress or failure.
Its recommendations are not legally binding. In practice, however, FSB members tend to commit to implementing agreed standards at the national level. That is how soft law becomes hard law: slowly, unevenly, and usually after a report like this one.
The timing was deliberate. The report landed just days before the G20 finance ministers and central bank governors met on October 15.
Author’s note: This article is analysis and commentary for informational purposes only. It is not legal advice, and nothing here is written in a professional capacity. Readers should seek qualified counsel for advice on their specific situation.
That is the core message of a new report from the Financial Stability Board, the body that coordinates financial regulation for the G20. The FSB found that global stablecoins have not been tested under severe stress or insolvency. It also found that the national rules meant to govern them are developing at different speeds.
The result, in the FSB’s view, is a gap. If a major issuer failed, it is not clear how holders would recover their funds.
For bitcoiners, this is a familiar argument in unfamiliar clothing. It is worth reading closely anyway.
A Market Built Fast, Rules Built Slowly
The numbers explain why the FSB is paying attention. Stablecoin capitalization stood at around $206 billion at the start of 2025 and has since grown to $306 billion. Most of that value sits in tokens pegged to the U.S. dollar.
Today, much of that capital is used to move in and out of crypto markets. The FSB acknowledges that stablecoins could eventually support faster and cheaper payments, including across borders. That potential is exactly what makes the regulatory picture uncomfortable.
In a letter accompanying the report, FSB Chair Andrew Bailey wrote that global stablecoin arrangements are international by their nature, while national regulation is taking shape unevenly and cooperation between jurisdictions remains at a very early stage.
Bailey, who is also Governor of the Bank of England, has previously warned that international stablecoin rulemaking had stalled. This report reads as an attempt to restart it.
The Problem With Shared Liability
The most technically interesting part of the report concerns what the FSB calls multi issuer structures.
In these arrangements, affiliated companies issue the same stablecoin and share liability for it. Each entity may hold its reserve assets in a different jurisdiction.
On a calm day, this is an operational detail. In a crisis, it becomes a structural weakness.
If holders can redeem with any issuer in the group, redemption demand can concentrate on a single entity. The assets needed to meet that demand may sit somewhere else entirely. The FSB warns that moving reserves between jurisdictions may become harder during a crisis, which is precisely when it would matter most.
Then comes the legal question. If one issuer in the group fails, the FSB notes it may be difficult to determine which country’s insolvency rules would apply.
This deserves more attention than it usually gets. Insolvency law is where a financial promise is finally converted into an actual recovery, or into a loss. A holder who believes they own a claim worth one dollar needs to know against whom that claim runs, in which court it will be heard, and how it ranks against other creditors. When liability is shared across affiliated entities and reserves are scattered across borders, each of those answers can be contested. Litigation over jurisdiction alone could take longer than any run would last.
The FSB does not resolve this. It identifies it, which is the necessary first step.
Markets That Never Close, Backed by Markets That Do
The report flags a second mismatch, this one about time.
Stablecoins trade around the clock. The markets for the assets that back them keep set operating hours. During a run, if redemptions cannot keep pace with selling, a token may lose its peg.
The FSB is careful to note the counterweight. Deep and liquid secondary markets can help pull a token back toward its peg through arbitrage. A peg under pressure is not automatically a peg that breaks.
But the report also describes how a break could travel. Forced reserve sales and bank deposit withdrawals could carry the shock into traditional financial markets as investors scramble for liquidity.
That is the transmission channel regulators care about most. A stablecoin failure would not stay inside crypto if the reserves behind it have to be liquidated in conventional markets at speed.
The Data Problem
The FSB also identifies weak data as an obstacle. The pseudonymous nature of crypto transactions can make it hard to know where holders are located and, by extension, which jurisdiction’s rules apply to them.
This connects directly back to the insolvency question. A regulator cannot plan a resolution for holders it cannot locate, and a court cannot easily allocate claims among creditors whose residence is unknown.
What the FSB Is Actually Asking For
The recommendations are modest in form. The FSB calls for more cross-jurisdictional information sharing, more monitoring, and more planning for stablecoin distress or failure.
Its recommendations are not legally binding. In practice, however, FSB members tend to commit to implementing agreed standards at the national level. That is how soft law becomes hard law: slowly, unevenly, and usually after a report like this one.
The timing was deliberate. The report landed just days before the G20 finance ministers and central bank governors met on October 15.
Author’s note: This article is analysis and commentary for informational purposes only. It is not legal advice, and nothing here is written in a professional capacity. Readers should seek qualified counsel for advice on their specific situation.