Real Threat Isn’t Stablecoins

� The Real Threat Isn’t Stablecoins — It’s the Banking System

By Kimchangick, storyteller

In a recent report, Yale professor Gary Gorton warned that stablecoins are essentially unregulated private banks and therefore susceptible to bank runs. He argued that because stablecoin issuers rely on short-term debt and promise liquidity, they risk sudden mass redemptions that could trigger systemic financial instability.

“Stablecoin issuers are economically equivalent to unregulated banks… These issuers therefore suffer from run risk and have the potential to systemically endanger the financial system.”

— Gary Gorton

At first glance, Gorton’s conclusion seems straightforward: stablecoins could ignite the next financial crisis. But this interpretation omits a critical piece of context.

The core question isn’t whether stablecoins are dangerous.

The real question is: What makes people want to flee to stablecoins in the first place?

Is it the existence of a new form of money that’s risky — or the structural fragility of the traditional banking system that drives people to seek alternatives?

� A Crisis Rooted in Banking Itself

Banks, after all, operate on a fractional reserve system. They hold only a portion of customer deposits in liquid reserves, lending out the rest to maximize economic utility. This works well — until it doesn’t.

In times of uncertainty, this model becomes a breeding ground for panic. If depositors fear a loss of confidence, a classic bank run ensues.

Liquidity dries up. Solvency teeters.

And as history shows, it’s rarely the fintech startups that fall first — it's the “too-big-to-fail” banks.

Professor Gorton himself has long recognized this dynamic.

“To prevent financial crises, regulate short-term debt.”

— Gary Gorton

He’s right. The real powder keg sits not in the blockchain, but in short-term funding markets and maturity mismatches embedded deep in our legacy financial system.

� What About Stablecoins?

Stablecoins, by contrast, are often pegged 1:1 to the U.S. dollar and marketed as safer, digital equivalents of cash.

Yes, many issuers have so far operated in legal grey zones. But efforts like the GENIUS Act, now pending in the U.S. Congress, aim to change that. The bill proposes that all stablecoin issuers must:

Hold 100% cash or cash-equivalent reserves,

Undergo regular audits, and

Provide full transparency reporting.

In this framework, stablecoins would be held to stricter solvency standards than most commercial banks. Ironically, they could become safer than the institutions they aim to complement — or replace.

Yet Gorton continues to raise the specter of a stablecoin run:

“During times of economic uncertainty, holders … might not want any of it. That’s when a bank run occurs … The run risk applies to stablecoin issuers, which are unregulated banks.”

— Gary Gorton

But here’s the issue:

This concern is rooted in a hypothetical, pre-regulatory world. It doesn’t reflect what stablecoins might look like under legally mandated reserve and audit regimes.

And if a fully collateralized, transparently managed stablecoin still faces a run, that run isn't a stablecoin problem —

It’s a crisis of trust in the financial system as a whole.

� Stablecoins Are Not Bombs — They’re Warning Bells

Gorton is half-right.

Stablecoins can reflect systemic stress. But they are not the cause.

If anything, they act as canaries in the coal mine, signaling deeper instability — particularly within legacy banking structures based on leverage, opacity, and fragile confidence.

What we should fear isn’t innovation.

It’s the deep-rooted complacency we show toward a centuries-old system built on partial reserves and blind trust.

Rather than demonizing emerging technologies, perhaps it's time we ask harder questions of the financial institutions we’ve long taken for granted.

The real risk lies not in the new. It lies in the old.