Hilary Allen, a law professor at American University, examines the risks of stablecoin runs amid growing regulatory scrutiny. While stablecoin holders have historically remained calm during de-pegging events, Allen argues policymakers must prepare for scenarios where these crypto assets face mass redemptions. The analysis comes as US banking regulators propose rules under the Genius Act to implement stablecoin oversight.

Unlike traditional consumer payment tools, stablecoins primarily function as collateral for crypto loans or temporary parking vehicles between trades. USDC briefly traded as low as 90 cents during the 2023 banking crisis after $3.3bn in reserves were tied to failing Silicon Valley Bank. Although government deposit guarantees prevented wider damage, fire-sale scenarios could emerge if large issuers face redemption pressure while dumping reserve assets.

The Genius Act mandates that US-registered stablecoins maintain backing in cash, Treasuries and safe assets, but Tether USDT operates outside these constraints as a non-US issuer. Historical precedent from money market funds in 2008 and 2020 shows even safe assets can trigger runs when confidence erodes.

Institutional adoption of tokenised assets could amplify systemic risks, particularly given stablecoins' concentrated Treasury holdings. Fire sales during market stress might spill into broader financial markets, making bailouts inevitable and leaving Congress accountable for inadequate safeguards.